Chapter 5 - ACCT 2020

What are some of the limitations of activity-based costing systems?

ABC requires substantial resources. Managers and employees may resist the change to ABC. ABC procedures produce numbers that do not match traditional costing.

In activity-based costing, the consumption of overhead resources is caused by:

an activity

Some manufacturing costs may be excluded from product costs when using:

activity based costing

focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of

activity based management

Individual product costs calculated using ABC are not listed on ______ reports.

external

In activity-based costing, first-stage allocation assigns costs to activity cost pools.

overhead

An activity-based costing system:

produces different numbers than a traditional system requires substantial resources is costly to maintain

In traditional costing, ______ costs are assigned to products.

manufacturing

Which of the following help companies channel their resources into the most profitable growth opportunities?

product and customer profitability reports

The most common management reports using ABC data are:

product profitability customer profitability

Activity rates are used to apply overhead costs to products and customers in the ______-stage allocation.

second

Activity rates are used to apply overhead costs to products and customers in the _______-stage allocation.

second

All manufacturing costs are allocated to products in a(n) _________ costing system, regardless of whether the product consumes the resources associated with those costs.

traditional/absorption

True or false: Activity-based costing can be used for process improvement.

true

True or false: Traditional cost systems tend to overcost standard products and overcost specialty products.

false - traditional systems undercost specialty products that tend to consume more overhead.

In activity-based costing, ______ allocation is the process of assigning overhead costs to activity cost pools.

first stage

Place the steps for implementing ABC in order.

1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $ per machine hour.

30

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $____ per machine hour

30

The first major step in implementing ABC is to identify the _______ that will form the foundation for the system.

activities

Activity-based costing uses numerous cost pools.

activity

In ABC, any event that causes consumption of overhead resources is a(n)

activity

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is:

$360,000 [($900k/30k) x 12K]

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is:

$425,000/$250 = 1,700

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products?

Manufacturing

An activity-based costing system:

may exclude some manufacturing costs from product costs uses numerous overhead cost pools

If some products are overcosted and some are undercosted the errors will:

offset each other in cost of goods sold and inventory valuations

Activity-based costing uses activity rates to apply overhead costs to products in ________ allocation.

second

An ABC system usually _____ a traditional cost system.

supplements

ABC is generally used for ______ reporting.

internal

Usually, traditional costing ______ high-volume products and ______ low-volume products.

overcosts; undercoats Traditional costing uses a volume-related allocation base and assigns more costs to high-volume products, resulting in overcosting. In contrast, it assigns fewer costs to low-volume products, resulting in undercosting.

Which costing method assigns only manufacturing costs to products?

traditional absorption costing

Which of the following is not essential for the successful implementation of an ABC system?

Top managers must design the ABC system.

Total cost of each activity divided by the total activity is the computation of:

activity rates

Identifying the activities that will form the foundation for the system:

involves a great deal of judgment can be time-consuming often involves interviewing employees