CH 4 Smart Book Acct 201B

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______. duration driver transaction driver activity measure activity cost pool

activity cost pool

A significant limitation of the ABC model is that the product costs computed will most likely be ______. understated for purposes of decision making overstated for purposes of decision making less accurate than those computed using a conventional system

overstated for purposes of decision making

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 ______. $900,000 $2,250,000 $450,000 $360,000

$360,000 Reason: ($900,000 ÷ 30,000) × 12,000 = $360,000

Research & development is a(n) _____________ - level activity.

Blank 1: product

An activity that must be done for each item produced is a(n) __________________ - ______________________ activity.

Blank 1: unit Blank 2: level

A predetermined overhead rate in an activity-based costing system is called ______. an activity activity-based management an activity rate an activity cost pool

an activity rate

The cost of implementing and maintaining an activity-based costing system ______ the benefits received. will always be less than may outweigh will always be higher than

may outweigh

Select all that apply Benefits of activity-based costing include ______. more accurate product costs helping managers understand the nature of overhead costs helping target areas for process improvement reducing the total overhead costs of a company

more accurate product costs helping managers understand the nature of overhead costs helping target areas for process improvement

When making decisions ______. facility-level costs should be included in product costs a distinction needs to be made between manufacturing and selling and administrative expenses some selling and administrative expenses should be assigned to products

some selling and administrative expenses should be assigned to products

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

activity

A cost bucket in which costs related to a particular activity measure are accumulated is called a(n) ______. activity activity rate activity cost pool activity measure

activity cost pool

Costs at the batch level depend on the number of ______. products in a batch units sold batches processed units produced

batches processed

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

False

When two variables move together, they are said to be negatively correlated. True False

False

How much of an activity is carried out is expressed by a(n) ______, which is used as the allocation base for applying overhead costs to products and services. activity rate activity measure activity-based costing system activity cost pool

activity measure

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

activity rates

Select all that apply Benefits of activity-based costing include ______. helping target areas for process improvement reducing the total overhead costs of a company helping managers understand the nature of overhead costs more accurate product costs

helping target areas for process improvement helping managers understand the nature of overhead costs more accurate product costs

Activity-based costing ______. computes product costs in the same way as traditional costing excludes direct labor from product costs only considers manufacturing overhead when computing product costs always leads to higher product costs than traditional costing

computes product costs in the same way as traditional costing

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $ ______________

7,800

Costs that cannot be traced on a cause-and-effect basis to individual products are ______ -levelcosts. facility batch unit

facility

Costs at the batch level depend on the number of ______. units produced units sold batches processed products in a batch

batches processed

A plantwide overhead rate based on direct labor hours is ______ appropriate. never always sometimes

sometimes

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is ______. unimportant important

unimportant

Multiple Choice Question Usually, traditional costing ______ high-volume products and ______ low-volume products. overcosts; overcosts overcosts; undercosts undercosts; overcosts undercosts; undercosts

overcosts; undercosts

True or false: Activity-based costing relies on a number of critical assumptions which could distort information for making decisions. True False

True

A predetermined overhead rate in an activity-based costing system is called a(n) _______________.

Blank 1: activity Blank 2: rate

An activity measure in activity-based costing is used as a(n) __________________ base for applying overhead costs to products and services.

allocation

When making decisions ______. some selling and administrative expenses should be assigned to products a distinction needs to be made between manufacturing and selling and administrative expenses facility-level costs should be included in product costs

some selling and administrative expenses should be assigned to products

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is ______. important unimportant

unimportant

The activity rate is computed by dividing the ______ by the ______. total departmental overhead cost; total activity level per department total cost in the activity cost pool; activity level in the activity cost pool total manufacturing cost; total activity level

total cost in the activity cost pool; activity level in the activity cost pool

When a company has extensive product diversity and complex overhead, it is best to assign overhead using ______. a single plantwide overhead rate activity-based costing departmental overhead rates

activity-based costing

An activity measure in activity-based costing is used as a(n) ______________ base for applying overhead costs to products and services.

allocation

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n) ______. direct labor activity measure cost pool activity

activity

When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of ______________ -level costs.

Blank 1: facility or organization

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 Unit-level Facility-level Product-level

Batch-level

Designing and advertising a good are both ______-level activities. unit batch product facility

product

Select all that apply Activity-based costing improves the accuracy of product costs by ______. using a variety of activity measures to assign overhead costs to products increasing the number of cost pools used to accumulate overhead cost highlighting the activities that could benefit the most from improvement initiatives using cost pools that are more homogeneous than departmental cost pools

using a variety of activity measures to assign overhead costs to products increasing the number of cost pools used to accumulate overhead cost using cost pools that are more homogeneous than departmental cost pools

Organization-sustaining activities is another term for ________________ -level activities.

facility

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, calculate the appropriate activity rate(s). $8 per customer call and $15 per development hour $20 per customer call and $25 per development hour $11.11 per customer call or per development hour

$8 per customer call and $15 per development hour Reason: $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.

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.

30 900,000 / 30,000

Given direct material cost of $10, direct labor cost of $15, direct-labor based overhead of $12 and Activity-Based Costing overhead of $16, the total cost of the product using Activity-Based costing is $ ________.

41 direct material + direct labor + ABC overhead

Moving from plantwide to departmental overhead rates tends to correct most of the product distortions that can occur with a plantwide system. True False

False Reason: While departmental rates may be an improvement over plantwide, they still generally rely on a single overhead allocation base and will not be sufficient when a company produces a variety of products with complex overhead.

Select all that apply Which of the following statements are true? On an economywide basis, direct labor and overhead costs are generally moving in opposite directions. Technology has made more complex product systems less expensive to develop and maintain. Most companies throughout the world have moved away from using direct labor hours or machine hours to allocate overhead. Product diversity increases the chance of overhead costs that are unrelated to direct labor.

On an economywide basis, direct labor and overhead costs are generally moving in opposite directions. Technology has made more complex product systems less expensive to develop and maintain. Product diversity increases the chance of overhead costs that are unrelated to direct labor.

Select all that apply When cost systems were developed in the 1800's, most companies ______. focused on simplicity produced a small number of similar products believed there was little correlation between labor hours and overhead assigned overhead based on machine hours

focused on simplicity produced a small number of similar products

Using volume-based cost drivers to assign overhead when ABC is appropriate ______. will always result in goods being underpriced may lead to overpriced or underpriced goods will always result in goods being overpriced will not affect the total price of goods

may lead to overpriced or underpriced goods

Select all that apply Using direct-labor hours or another volume based cost driver to assign overhead ______. may result in overcharging customers for products ignores other significant causes of overhead can badly distort labor and material costs may result in selling products at a loss

may result in overcharging customers for products ignores other significant causes of overhead may result in selling products at a loss

A significant limitation of the ABC model is that the product costs computed will most likely be ______. understated for purposes of decision making less accurate than those computed using a conventional system overstated for purposes of decision making

overstated for purposes of decision making

Select all that apply Implementing activity-based costing ______. requires substantial resources should be done by a cross-functional team requires taking employees away from other tasks should be done using existing, historical data that can be verified

requires substantial resources should be done by a cross-functional team requires taking employees away from other tasks

An activity that must be done for each item produced is a(n) __ level activity. product unit batch facility

unit

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 rate is $ ___________ per setup.

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

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $ _______________.

8,000 The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $8,000400 x 20 = 8000

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

Blank 1: batch

When making decisions ______. a distinction needs to be made between manufacturing and selling and administrative expenses facility-level costs should be included in product costs some selling and administrative expenses should be assigned to products

some selling and administrative expenses should be assigned to products