Chapter 4 SmartBook

The activity rate is computed by dividing the ____________ by the _____________.

total activity cost; total cost driver

To calculate manufacturing overhead cost per unit using ABC, divide the total ____________.

manufacturing overhead cost by the number of units produced

A group of similar activities that have been combined together is an activity ____________.

cost pool

An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called _________ ________ management.

Total quality

A system that pulls materials and products through the manufacturing system based on customer demand is called ____________.

just-in-time

Which of the following statements is true?

An existing ABC system can report sustainability-related information.

A management system that focuses on continually improving production processes is called ____________.

total quality management

The activity rate is computed by dividing the ______ by the ______.

total activity cost; total cost driver

Which of the following is NOT a volume-based cost driver?

Machine setups

A predetermined overhead rate in an activity-based costing system is called ____________.

an activity rate

Implementing an ABC system ____________.

provides information for cost management

A proactive approach managers use to determine what costs should be is called ____________.

target costing

The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called __________ _________.

target costing

Direct labor hours and machine hours are both examples of _________ -based cost drivers.

volume

Estimated manufacturing overhead $300,000 Estimated direct labor hours 2,500 Actual manufacturing overhead $370,000 Actual direct labor hours 3,000 Based on the information presented above, calculate the predetermined overhead rate per direct hour.

$120.00 Reason: $300,000 ÷ 2,500 = $120 per direct labor hour.

Which of the following statements are true?

-Managing and reducing costs is the true benefit of ABC. -Implementing an ABC system is not a trivial task.

Which of the following are facility-level activities?

-Paying factory insurance -Human resource hiring fairs

Which of the following statements are true?

-The support of upper management is required for successful ABC implementation. -Before implementing ABC, a company should weigh the benefits against the costs.

Activity-based management focuses on ____________.

-increasing efficiency -improving operations

A just-in-time (JIT) system ____________.

-is a demand-pull system -is used to help reduce costs

Indirect costs can be assigned to products or services using ____________.

-the activity rate method -the activity proportion method

Improving operations and reducing costs is the focus of _________ _________ management.

Activity based

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity rate

What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?

Facility-level

True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.

True

A technique that attempts to assign overhead costs to products based on the actions they require is called _________-_________ costing.

activity based

Indirect costs ______.

are not easily traced to products or services

A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity.

service

Under activity-based costing, a degree program at a university is considered a(n) _________-level activity.

service

Estimated manufacturing overhead $500,000 Estimated direct labor cost $250,000 Actual manufacturing overhead $720,000 Actual direct labor cost $300,000 Based on the information presented above, calculate the predetermined overhead rate per direct labor dollar.

$2.00 per direct labor dollar Explanation: Reason: $500,000 ÷ $250,000 = $2.00 per direct labor dollar.

Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?

$280 Reason: $35,000 ÷ 5,000 or $7 per direct labor hour × 40 hours = $280.

True or False: Activities can be combined if they are at different levels of the ABC hierarchy (e.g., unit, batch, product, or facility) as long as the various products place similar demands on the activity cost drivers.

False

The percentage of the total cost driver that is attributable to each product line is called a(n) __________ __________.

activity proportion

A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.

activity-based

The final step in activity-based costing is __________.

assigning indirect costs to products or services

The formula to compute activity proportion is ____________.

cost driver for product ÷÷ cost driver for all products

All of the following are non-volume-based cost drivers except number of _____________.

machine hours

A cost driver that is not strictly related to the number of units produced or customers served is a ______ cost driver.

non-volume-based

Indirect costs are also referred to as __________ costs.

overhead

True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.

False

A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $_______in total overhead.

Answer: 1200 Predetermined overhead rate = $3 per direct labor dollar Total direct labor cost assigned to job = $400 Overhead cost assigned to Job = Direct labor cost * Overhead rate = $400 * $3 = $1,200

True or False. Activities can be combined if they are at different levels of the ABC hierarchy (e.g., unit, batch, product, or facility) as long as the various products place similar demands on the activity cost drivers.

False Reason: Activities can be combined if they are at the same level of the ABC hierarchy (e.g., unit, batch, product, or facility) AND if the various products place similar demands on the activity cost drivers.

True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.

False Reason: This in itself is not a good reason to implement ABC. The real benefit is the information it provides to managers to pursue cost management.