Chapter 7: Activity-Based Costing: A Tool to Aid Decision Making
manufacturing
A traditional cost system assigns only _____________ costs to products - direct materials, direct labor, and manufacturing overhead.
plantwide
A traditional cost system uses a _________ overhead rate to assign manufacturing costs to products.
TRUE
ABC systems do not assign two types of manufacturing overhead costs to products - organization-sustaining costs and unused capacity costs.
dividing
Activity rates are computed by ________ the total cost for each activity by its total activity.
indirect
Activity-based costing systems allocate ________ nonmanufacturing costs to products whenever the products have presumably caused the costs to be incurred.
products
Activity-based costing systems trace all direct nonmanufacturing costs to ________.
batch
Customer orders is a _____-level activity because each order generates work that occurs regardless of whether the order is for 1 or 1,000 units.
NO
Does an activity-based costing system conform to GAAP?
less
External reports are less?/more? detailed than internal reports prepared for decision making.
NO
In a traditional cost system, are selling and administrative expenses assigned to products?
product
In activity-based costing, all direct manufacturing and nonmanufacturing costs are _______ costs.
overhead
In activity-based costing, all indirect manufacturing and nonmanufacturing costs are ________ costs.
cause; effect
In activity-based costing, nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a _____-and-______ basis.
cost pools
In activity-based costing, numerous overhead ____ _____ are used, each of which is allocated to products and other cost objects using its own unique measure of activity.
YES
Is activity-based costing used as a supplement to a company's usual costing system?
period
Organization-sustaining costs are treated as ______ expenses.
product
Product design is a _______-level activity because the amount of design work on a new product does not depend on the number of units ordered.
activity-rates
The ________-_____ computed in ABC can provide valuable clues concerning where there is waste and opportunity for improvement.
margin
The profit from a product is equal to the product ______.
product; period
Traditional absorption costing treats all manufacturing costs as _______ costs and all nonmanufacturing costs as ______ costs.
high; low
Traditional cost systems overcost ____-volume products and undercost ___-volume products.
TRUE
True or False: In activity-based costing, some manufacturing costs may be excluded from product costs.
TRUE
True or False: Overhead includes ALL indirect costs - manufacturing and nonmanufacturing.
Auditors
________ are likely to be uncomfortable with allocations that are based on interviews with the company's personnel because such subjective data can be easily manipulated by management to make earnings and other key variables look more favorable.
activity cost pool
a "bucket" in which costs are accumulated that relate to a single activity measure in an ABC system
activity-based costing (ABC)
a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs
activity-based management (ABM)
a management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects
duration driver
a measure of the amount of time required to perform an activity
transaction driver
a simple count of the number of times an activity occurs
benchmarking
a systematic approach to identifying the activities with the greatest potential for improvement; based on comparing the performance in an organization with the performance of other, similar organizations known for their outstanding performance
organization-sustaining activities
activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made
customer-level activities
activities that are carried out to support customers, but that are not related to any specific products
batch-level activities
activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch
unit-level activities
activities that are performed each time a unit is produced
product-level activities
activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run
activity measure
an allocation base in an ABC system; ideally a measure of the amount of activity that drives the costs in an activity cost pool
activity
an event that causes the consumption of overhead resources
second-stage allocation
the process by which activity rates are used to apply costs to products and customers in ABC
first-stage allocation
the process by which overhead costs are assigned to activity cost pools in an ABC system