Chapter 4

activity rate=

total cost in activity cost pool/total expected activity

Customer Orders Require.....eg

Scheduling, Sewing Inspection, Shipping

Activity measure

An allocation base in an activity-based costing system; ideally, a measure of whatever causes the costs in an activity cost pool. eg: the number of patients admitted is a natural choice of an activity measure for the activity admitting patients to the hospital.

Activity

An event that causes the consumption of overhead resources.

Activity rate

An overhead rate in activity-based costing. Each activity cost pool has its own activity rate which is used to assign overhead to products and services.

Activities consume....

Labor, Equipment, Energy, Supplies

What three approaches do companies assign to overhead costs to products?

Plantwide Overhead Rate, Departmental Overhead Rate, Activity-Based Costing(most accurate)

activity examples

Setting up machines, admitting patients to a hospital, scheduling production, performing blood tests at a clinic, billing customers, maintaining equipment, ordering materials or supplies, stocking shelves at a store, meeting with clients at a law firm, preparing shipments, inspecting materials for defects, opening an account at a bank.

activity cost pool

A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Activity-based costing (ABC)

A two-stage costing method in which overhead costs are assigned to products on the basis of the activities they require.

Departmental overhead rates may not correctly assign overhead costs in situations where a company has

a variety of products

In ABC, any event that causes consumption of overhead resources is an

activity

in activity based costing, each cost pool accumulates costs that relate to a single.......... measure in the ABC system.

activity

A technique that attempts to assign overhead costs more accurately to products is known as

activity based costing

a "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n)

activity cost pool

an activity measure is an ........ base in an activity based costing system.

allocation

a predetermined overhead rate in an activity based costing system is called

an activity rate

If factorywide overhead costs do NOT move in the same direction as the plantwide activity base, products costs will be:

distorted

Departmental overhead rates

may not assign overhead correctly with a company has many products, may use different allocation bases in different departments