Accounting Quiz 2
Just-in-time processing
a processing system dedicated to having the right ammonite of materials, parts, or products arrive as they are needed, thereby reducing the amount of inventory
batch-level activities
activities performed for each batch of products rather than for each unit
unit-level activities
activities performed for each unit of production
product-level activites
activities performed in support of an entire product line, but not always performed every time a new unit or batch of products is produced
Faculty-Level activites
activities required to support or sustain an entire production process
value-added activity
an activity that increases the perceived worth of a product or service to a customer
non-value-added activty
an activity that, if eliminated, would not hinder the company's operations or reduce the perceived worth of its product or service
activity-based costing
an overhead cost-allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used
activity
any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service
cost driver
any factor or activity that has a direct cause-effect relationship with the resources consumed. In ABC, cost drivers are used to assign activity cost pools to products or services.
examples of variable costs
commission
mixed costs
costs that contain both a variable and a fixed cost element and change in total but not proportionately with the changes un the activity level
fixed costs
costs that remain the same in total regardless of changes in the activity level
variable costs
costs that vary in total directly and proportionately with changes in the activity level
Examples of unit activities
drilling, cutting milling, trimming, pressing (machine hours) assembling, painting,sanding, sewing (direct labor hours or cost)
Examples of batch-level activities
ex. # of equipment set ups # of purchasing # of purchase ordering # of inspection
limitations of ABC
expensive to use some arbitrary allocations continue
activity-base management
extends ABC from product costing to a comprehensive management tool that focuses on reducing costs and improving processes and decision-making
activity based costing
individual costs
benefits of activity based costing
leads to more cost pools leads to enhanced control over overhead costs leads to better management decisions
traditional
lump sum
Examples of facility-level activities
plant management salaries plant depreciation property taxes utilities
examples of fixed costs
poperty taxes, insurance
Examples of product-level activites
product design engineering changes number of product designs number of changes
activity cost pool
the overhead cost attributed to a distinct type of activity or related activties
cost behavior analysis
the study of how specific costs respond to changes in the level of business activity