Chapter 4 - Accounting

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

an activity rate.

A systematic approach that can identify improvement opportunities is ______.

benchmarking.

_____ - ______management involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

Activity-based.

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 ______.

$360,000 [($900k/30k) x 12K]

For each unit of a product, the direct material cost is $10, the direct labor cost is $15, and the manufacturing overhead is $16. The total unit product cost using activity-cased costing is ______.

$41 10+15+16 = 41.

A plantwide overhead rate based on direct labor hours is ______ appropriate.

Sometimes.

When cost systems were developed in the 1800's, most companies ______.

focused on simplicity and produced a small number of similar products.

Using direct-labor hours or another volume based cost driver to assign overhead ______.

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

Using volume-based cost drivers to assign overhead when ABC is appropriate ______.

may lead to overpriced or underpriced goods.

The cost of implementing and maintaining an activity-based costing system ______ the benefits received.

may outweigh.

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

overcosts; undercosts.

Traditional cost systems tend to undercost standard products and overcost specialty products.

False.

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

False.

Activity-based costing improves the accuracy of product costs by ______.

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

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

activity cost pool.

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

activity cost pool.

Also called organization-sustaining activities, ____ - ____ activities are activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made.

Facility-level.

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

Batch.

_____ -level activities consist of tasks that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch.

Batch.

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

Facility.

Which of the following statements are true?

Technology has made more complex product systems less expensive to develop and maintain. On an economywide basis, direct labor and overhead costs are generally moving in opposite directions.

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

Unit.

A company incurred the following: Total manufacturing costs of $500,000, total production department costs of $300,000, and total production order costs of $275,000. It used a total of 50,000 direct labour hours and 100,000 machine hours, and 2,750 production orders were placed. Use activity-based costing to calculate the activity rate for production orders.

$275,000 / 2,750 production orders = $100 per Order.

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

True.

When using activity rates, overhead is assigned the same way as when using plantwide or departmental rates.

True.

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

Unimportant.

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

Unit-level.

Implementing activity-based costing ______.

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

In activity-based costing an activity measure is ______.

an allocation base.

Processing purchase orders is considered to be a(n) ______-level activity.

Batch.

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

Facility

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

Activity rate.

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

Activity.

______ - ______ activities relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured.

Product-level.

Designing and advertising a good are both ______-level activities.

Product.

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).

$200000/25000=8 per customer call and $300000/20000=$15 per development hours.

Activity-based management is focused on ______.

-Reducing defects -Eliminating waste

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $

30 ($900,000 / 30,000 = $30)

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 $

400x20=8000

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 $

65x120 = $7800

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n) ______.

Activity.

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

Allocation.

Departmental overhead rates correctly assign overhead costs in situations where a company has a range of products and complex overhead costs.

False.

Total cost of each activity divided by the total activity is the computation of ______.

activity rates.

When a company has extensive product diversity and complex overhead, it is best to assign overhead using ______.

activity-based costing

Activity-based costing ______.

computes product costs in the same way as traditional costing.

Benefits of activity-based costing include ______.

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

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

overstated for purposes of decision making.

The basis of benchmarking is comparing ______.

performance within the same industry.

The ABC model is useful when an organization is making decisions about how ______.

some selling and administrative expenses should be assigned to products.