CH7 ACCT3030

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).

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

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is ______.

$425,000 ÷ $250 = 1,700

What are some of the limitations of activity-based costing systems?

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

Which costing system does not assign selling and administrative costs to products when computing product margin?

Traditional

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

first

The first major step when implementing an ABC system is ______.

identify the activities

Activity-based costing is not used for external reporting because ______.

it is difficult to make changes in the existing accounting system ABC does not comply with GAAP external reports are less detailed than internal reports

An example of a transaction driver is the ______.

number of bills sent out to a customer

Activity-based costing uses numerous_ cost pools

overhead

Unit-level activities are ______.

proportional to the number of units produced

Power to run production equipment is a(n)__-level activity.

unit

Costs that can be easily traced to individual products include ______.

warranty repair costs sales commission shipping costs

Place the steps for implementing ABC in order.

1. define activities, activity cost pools, and activity measure 2. assign overhead costs to activity cost pools 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.

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

False

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

Organization-sustaining

Which of the following help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

T

Which of the following is not essential for the successful implementation of an ABC system?

Top managers must design the ABC system.

A characteristic essential for successful implementation of ABC is ______.

a link to how people are evaluated and rewarded

Costs of unused or idle capacity are assigned to products when using a(n

absorption/full costing system

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

activity

In activity-based costing, each cost pool accumulates costs that relate to a single__measure in the ABC system

activity

Some manufacturing costs may be excluded from product costs when using ______ costing.

activity based

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

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

activity-based management

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

an activity

Identifying the activities that will form the foundation for the system ______.

can be time-consuming involves a great deal of judgment often involves interviewing employees

In activity based costing another term for activity measure is ______.

cost driver

In activity-based costing, another term for allocation base or activity measure is

cost driver

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.

customer-level

Costs assigned and/or traced when computing product margin in a traditional cost system are ______.

direct labor direct material manufacturing overhead

An activity cost pool accumulates costs for ______ activity measure(s).

exactly one

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to

increase

ABC is generally used for ______ reporting.

internal

An activity-based costing system ______.

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

Customer-level activities include ______.

mailing catalogs sales calls

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.

more

If some products are overcosted and some are undercosted the errors will ______.

offset each other in cost of goods sold and inventory valuations

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or __ activity

organization sustaining

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

overcosts; undercosts

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

overhead

In activity-based costing, first-stage allocation assigns_costs to activity cost pools.

overhead

Activity-based costing uses more cost_ than traditional costing.

pools

The final step in implementing ABC is ______.

prepare management reports

Organization-sustaining activities include ______.

preparing annual reports setting up a computer network heating a factory

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

profitability

Activity-based management is focused on ______.

reducing defects eliminating waste

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. Multiple choice question.

second

An ABC system usually ______ a traditional cost system.

supplements

Simple counts of the number of times an activity occurs are __ drivers

transaction