Chapter 17

Batch-Level Activities

1. Equipment setups: Number of setups or setup time 2. Purchase ordering: Number of purchase orders 3. Inspection: Number of inspections or inspection time 4. Material handling: Number of material moves.

1. A traditional costing system allocated overhead by means of multiple overhead rates (T/F)

1. False

Non-value-added (Do it)

1. Inspecting completed Skis 2. Storing raw material 3. Machine Setups 4. Reworking defective skis.

Value-added (Do it)

1. Installing bindings on skis 2. Packaging skis for shipment.

Unit-Level Activities

1. Machine-related (Drilling, cutting, milling, trimming, pressing): Machine Hours 2. Labor-related (Assembling, painting, sanding, sewing): Direct labor hours or cost

Value-added

1. Machining: Drill - Lathe 2. Assembly 3. Package and Ship

Facility-Level Activities

1. Plant management salaries: Number of employees managed 2. Plant depreciation: Square footage 3. Property taxes: Square footage 4. Utilities: Square footage

Product-Level Activities

1. Product Design: Number of product designs 2. Engineering changes: Number of changes

Classify activities 1. engineering design 2. machine setup 3. toy design 4. interviews of prospective employees 5. inspections after each setup 6. polishing parts 7. assembling parts 8. health and safety

1. Product-level 2. batch-level 3. product-level 4. facility-level 5. batch-level 6. unit-level 7. unit-level 8. facility-level

Non-value-added

1. Receive and Inspect Materials 2. Move and store materials 3. Move materials to production and wait 4. Set up Machines 5. Inspect 6. Move and Wait 7. Inspect and Test 8. Move to Storage 9. Store Finished Goods

2. Activity-based costing allocates overhead costs in a two-stage process (T/F)

2. True

3. Direct Material and direct labor costs are easier to trace to products than overhead. (T/F)

3. True

4. As manufacturing processes have become more automated, more companies have chosen to allocate overhead on the basis of direct labor costs (T/F)

4. False

5. In activity-based costing, an activity is any event, action, transaction, or work sequence that incurs cost when producing a product.

5. True

Activity-based overhead rate =

Estimated overhead per activity / Expected use of cost drivers per activity

Value-added activities

are those activities of a company's operations that increase the perceived worth of a product or service to customers.

Non-value-added activities

are those activities that, if eliminated, would not hinder the company's operations or reduce the perceived worth of its product or service.

Traditional costing

assigns manufacturing overhead based on the volume of a cost driver, such as the amount of direct labor hours needed to produce an item. A cost driver is a factor that causes cost to incur, such as machine hours, direct labor hours and direct material hours.

Activity-based management (ABM)

extends the use of ABC from product costing to a comprehensive management tool that focuses on reducing costs and improving processes and decision-making

Activity-based Costing

is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each.