Chapter 7 SmartBook

costs are assigned and/or traced when computing product margin in a traditional cost system are _____(3).

1. MOH 2. direct labor 3. direct materials

steps for implementing ABC:

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

ABC does not conform to GAAP because it (2):

1. excludes some manufacturing costs 2. includes some nonmanufacturing costs

overhead includes both manufacturing & non-manufacturing costs under _____ costing.

activity-based

in ABC, the consumption of overhead resources is caused by _____.

an activity

in activity-based costing, what costs are not assigned to products? a.) sales commissions b.) organization-sustaining c.) unused capacity d.) direct labor

b & c b.) organization-sustaining c.) unused capacity

in activity-based costing, another term for allocation base or activity measure is ______ ______.

cost driver

an activity cost pool accumulates costs for ________ ______ activity measure.

exactly one

traditional cost systems tend to undercost standard products & overcost specialty products. (t/f)

false the opposite is true-traditional systems undercost specialty products that tend to consume more overhead

external reports are ______ (more/less) detailed than internal reports.

less

in a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products?

manufacturing

the greater number of activities in an ABC system, the ______ (more/less) costly it is for the company to develop.

more

if ABC is NOT implemented correctly and organization-sustaining costs are included in product costs, then product costs will be ______ and margins will be ______.

overstated understated

to assist in first-stage allocations in ABC, employees designated as indirect factory workers should provide the:

percentage of employee time spent for each activity pool

activity-based costing uses more cost ____ than traditional costing.

pools

activity based costing measures are not necessarily related to the number of units ______.

produced

the profit from a product is also called the _____ _____.

product margin

costs of unused or idle capacity are assigned to products when us a _______ costing system.

traditional

total cost of each activity divided by the total activity is the computation of _____ _______.

transaction drivers

some manufacturing costs may be excluded from product cost when using ABC. (t/f)

true not all manufacturing costs are included when allocating product cost

which of the following items are the same under both ABC & traditional costing? a.) product margins b.) total sales c.) total costs d.) net operating income

b, c, & d b.) total sales c.) total costs d.) net operating income

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

first

ABC is generally used for ______ reporting.

internal

an example of a transaction driver is:

number of bills sent out to a customer

in ABC _______ _______ are different from those calculated in traditional costing.

product margins

an example of a duration driver is:

time spent preparing invoices

a company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $_____.

$175,000 $750,000 - $360,000 - $215,000 = $175,000

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 $65 x 120 orders = $7,800

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 & $15 per development hour $200,000 / 25,000 customer service calls = $8 $300,000 / 20,000 development hours = $15

organization-sustaining activities include: a.) setting up a computer network b.) heating a factory c.) preparing annual reports d.) arranging product shipments to customers

a, b, & c a.) setting up a computer network b.) heating a factory c.) preparing annual reports

costs that can be easily traced to individual products include: a.) sales commission b.) warranty repair costs c.) factory supervisor's salary d.) shipping costs

a, b, d a.) sales commission b.) warranty repair costs d.) shipping costs

focusing on activities to eliminate waste, decrease processing time, & reduce defects is the basis of _____-______ _____.

activity-based management

activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.

second

to reconcile ABC product margin to net income __________.

subtract overhead costs not assigned to products

in an automated environment, using traditional allocation bases based on volume may distort unit product costs. (t/f)

true traditional allocation bases tend to overcost high volume & undercost low volume products

when making decisions using ABC data:

unavoidable fixed costs should be ignored