Accounting 201B Chapter 3

Which of the following are benefits of activity-based costing?

Helps target areas for improvement; produces more accurate product costs; helps managers understand the nature of overhead costs.

What type of activities are performed each time a group of units is processed, regardless of how many units are in the group?

batch-level

Which of the following is not a cost associated with implementing activity-based costing?

Overhead to be allocated (employee time; system design; data collection and verification)

comparing the performance within an organization to that of other similar organizations is called___.

benchmarking

When a company implements activity-based costing, overhead cost often shifts from ___ volume products to ___ volume products.

high; low

Activity-based costing can identify activities that would benefit from process ___.

improvements

A significant limitation of the ABC model is that the product costs computed will most likely be:

overstated for purposes of decision making

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

facility-level

Direct labor hours is an accurate allocation base when:

factors other than direct labor have an insignificant effect on overhead costs.

The formula to apply overhead to products is:

activity rate times activity

The costs in the activity cost pools are allocated to products using activity rates and activity measures. This is part of stage___ in allocating overhead costs to products.

two

If factory wide overhead costs do not move in the same direction as the plant wide activity base, products costs will be:

distorted

When making decisions:

some selling and administrative expenses should be assigned to products

Under activity-based costing, a company determined that its activity rate for the general category was $2.00 per machine hour. If the expected machine hours for Product A are 3,000, and the expected labor hours are 1,000, then how much overhead cost should be allocated to Product A?

$2*3,000= $6,000

How many overhead cost pools are used if the plant wide approach is used for assigning overhead?

1

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities.

Batch-level activities

Which of the following is not a common method used to assign overhead to products?

Direct tracing of overhead (wrong) (plant wide overhead rate, departmental overhead rate, activity-based costing)

A(n)____ ____ ____ is a cost bucket in which costs related to a particular activity measure are accumulated.

activity cost pool

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine set ups. The activity rare is $___ per setup.

$500 ($400,000/800=$500)

An ___ is a predetermined overhead rate in an activity-based costing system.

activity rate

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

Activity-based costing (ABC)

Which of the following are reasons that companies are moving away from a plantwide overhead rate like direct labor?

Many tasks are now done with automated equipment; a variety of products are made by companies; direct labor is no longer directly correlated to overhead for many products.

Unit-level Batch-level Product-level Facility-level

Power to run production equipment Machine set-up Product design factory building depreciation

Which of the following issues needs to be considered when implementing an ABC system?

The cost in each activity cost pool may not be strictly proportional to its activity measure; the cost of designing and implementing the system may outweigh the benefits of the system.

Which of the following statements are true?

Traditional costing systems can distort product costs; products do not all use resources in the same way.

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 a(n)_____.

activity

Activity-based management is focused on which the following activities?

eliminate waste; decrease processing time; reduce defects

A cost pool consisting of costs of design work on new products would be considered what level of activity?

product-level

Which of the following situations are most likely to need activity-based costing implemented?

products differ substantially in batch size and the activities they require; overhead costs are high and no one knows why

Unit-level activities are:

proportional to the number of units produced

The activity rate is computed by dividing the ___ by the ____.

total cost in the production-order activity cost pool by the anticipated number of orders for the upcoming year (total cost in the activity cost pool; activity level in the activity cost pool)

True or False: Activity-based costing was designed to be used for a manufacturing company and should not be sued in service industries.

False

Which of the following is not generally part of the design of an activity-based costing system?

Identifying and including all activities that cause overhead costs

A(n) ___ expresses how much of the activity is carried out. It is used as the allocation base for applying overhead costs to products and services.

activity measure