Chapter 7 Smartbook

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

an activity

Traditional cost systems tend to undercost standard products and overcost specialty products. -True -False

false

The first major step when implementing an ABC system is ______. -identify the activities -assign overhead costs -compute the activity measure -classify cost pools

identify the activities

ABC is generally used for Blank______ reporting. -external -internal -both internal and external

internal

Which costing system does not assign selling and administrative costs to products when computing product margin? -Activity-based -Both traditional and activity-based -Neither traditional nor activity-based -Traditional

traditional

Activity-based costing can be used for process improvement. -True -False

true

Arrange the steps for implementing ABC in the correct order

1. Define activities, activity cost pools, and activity measures 2. Assign overhead costs to activity cost pools 3. Calculate activity rates 4. Assign overhead costs to cost objects 5. Prepare management reports

A characteristic essential for successful implementation of ABC is: -top management must design the system. -a link to how people are evaluated and rewarded. -strong support from a cross-functional team.

a link to how people are evaluated and rewarded.

Costs of unused or idle capacity are assigned to products when using a(n) _____________ costing system.

absorption

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

activities

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

activity

Some manufacturing costs may be excluded from product costs when using Blank______ costing. -either traditional absorption or activity-based -neither traditional absorption nor activity-based -traditional absorption -activity-based

activity based

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

overhead

The final step in implementing ABC is ______. -prepare management reports -calculate activity rates -assign overhead costs to cost objects

prepare management reports

The most common reports prepared using ABC data are the product and customer __________ reports.

profitability, margin, or profit

An activity-based costing system Blank______. -is used for external reporting -only assigns manufacturing costs to products -uses numerous overhead cost pools -may exclude some manufacturing costs from product costs

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

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, the activity rates are Blank______. -$20 per customer call and $25 per development hour -$8 per customer call and $15 per development hour -$11.11 per customer call or per development hour

$8 per customer call and $15 per development hour

What are some of the limitations of activity-based costing systems? -ABC procedures produce numbers that do not match traditional costing. -The benefits of accuracy always outweigh the costs. -ABC requires substantial resources. -Managers and employees may resist the change to ABC.

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

Which of the following help companies channel their resources into the most profitable growth opportunities? -Product and customer profitability reports -Balance sheet -Income statements -Activity based costing allocation reports

Product and customer profitability reports

Under activity-based costing, nonmanufacturing costs Blank______. -are never assigned to products -are always assigned to products, regardless of cause -may be allocated to products based on cause -are always treated as period costs

may be allocated to products based on cause

Which of the following is not essential for the successful implementation of an ABC system? -A cross-functional team should be created to design and implement the ABC system. -Top managers must design the ABC system. -Top managers must support the ABC system. -Top managers should ensure that ABC data is linked to how employees are evaluated and rewarded.

Top managers must design the ABC system.

Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity? -Activity-based -Process -Both activity-based and traditional -Traditional

activity based

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of __________ - __________ __________ .

activity based management

Total cost of each activity divided by the total activity is the computation of ______. -activity rates -transaction drivers -allocation bases -cost pools

activity rates

Activity based costing provides managers with information that affects ______. -neither fixed nor variable costs -both fixed and variable costs -only fixed costs -only variable costs

both fixed and variable costs

In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis. -cause-and-effect -compare-and-contrast -day-to-day -as needed

cause-and-effect

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

external

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation. -first -fourth -third -second

first

External reports are _________ (more/less) detailed than internal reports.

less

Under activity-based costing, nonmanufacturing costs Blank______. -are always assigned to products, regardless of cause -are never assigned to products -may be allocated to products based on cause -are always treated as period costs

may be allocated to products based on cause

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

second

Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation. -second -third -first -fourth

second

Costs assigned and/or traced when computing product margin in a traditional cost system are Blank______. -manufacturing overhead -selling and administrative -direct material -direct labor

-manufacturing overhead -direct material -direct labor

Costs that can be easily traced to individual products include Blank______. -sales commission -shipping costs -warranty repair costs -factory supervisor's salary

-sales commission -shipping costs -warranty repair costs

The most common management reports using ABC data are ______. -customer profitability -second-stage allocation -first-stage allocation -product profitability

-customer profitability -product profitability

Activity-based management is focused on __________. -eliminating waste -reducing defects -increasing processing time -pricing decisions

-eliminating waste -reducing defects

An activity-based costing system ______. -is costly to maintain -provides benefits of improved accuracy that always outweigh the costs -requires substantial resources -produces different numbers than a traditional system

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

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

-overcosts -undercosts

An ABC system usually Blank______ a traditional cost system.

supplements