Managerial Accounting Chapter 7

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 or 175000

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

7800

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $

875

Which of the following is NOT an ABC level of activity?

Employee

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

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

Product and customer profitability reports

Which of the following is NOT an organizational sustaining cost?

Set-up labor wages

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

Top managers must design the ABC system.

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

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual customer sales is the number of ______.

customer orders

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

customer-level

In the 19th and 20th centuries ______.

direct labor hours was a satisfactory overhead allocation base

The amount of time required to perform an activity is measured by a(n)

duration

Individual product costs calculated using ABC are not listed on ______ reports.

external

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

In activity-based costing, first-stage allocations are usually based on the results of ______.

interviews with employees

Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer

margin or profitability

Activity-based costing ______ include activities that do not relate to the number of units produced.

may

An example of a transaction driver is the ______.

number of bills sent out to a customer

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

offset each other in cost of goods sold and inventory valuations

The basis of benchmarking is comparing ______.

performance within the same industry

Activity-based costing uses more cost than traditional costing.

pools

The final step in implementing ABC is ______.

prepare management reports

A product's _________ is a function of sales and the direct and indirect costs that the product causes.

product margin

The profit from a product is also called the

product margin

All manufacturing costs are assigned to products in ___________costing.

traditional

True or false: As the number of activities increases, the cost to implement an ABC system also increases.

true

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

true

True or false: Some manufacturing costs may be excluded from product cost when using ABC.

true

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

unit

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

unit

What level of activity is performed each time an item of a product is produced?

unit-level

Overhead includes both manufacturing and nonmanufacturing costs under ______ costing.

activity-based

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

activity-based

In the 19th and 20th centuries, cost systems relied on allocation bases such as ______.

labor hours and machine hours

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause

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

traditional

Simple counts of the number of times an activity occurs are __________drivers.

transaction

True or false: Activity-based costing can be used for process improvement.

true

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of ______.

units produced

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.

A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs?

6200

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

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

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

ABC is not used for external reporting because ____ would not be comfortable using allocations based on employee interviews.

Auditors

A systematic approach that can identify improvement opportunities is ______.

benchmarking

Activity-based costing data ______.

can be easily misinterpreted

In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.

cause-and-effect

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

first

Employees may be asked to estimate their time spent dealing with cost pool activities so that ______.

first-stage allocations will be more accurate

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

more

In traditional costing, ______ costs are assigned to products.

only manufacturing

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

overhead

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

Activity-based costing treats organization-sustaining costs as expenses.

period

A reason that activity-based costing is not often used for external reporting is ______.

the ABC system may not conform to GAAP

An example of a duration driver is the ______.

time spent preparing invoices

Simple counts of the number of times an activity occurs are ______________ drivers.

time spent preparing invoices

True or false: When a team is created to design and implement an ABC system, it should include members that represent many different functional areas.

true

When making decisions using ABC data ______.

unavoidable fixed costs should be ignored

Activity based costing provides managers with information that affects ______.

variable

Organization-sustaining activities include ______.

-setting up a computer network -heating a factory -preparing annual reports

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

-shipping costs -sales commission -warranty repair costs

Under activity-based costing, overhead includes ______.

all indirect costs

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

an activity

Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews?

auditors

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

Customer-level activities include ______.

-sales calls -mailing catalogs

A characteristic essential for successful implementation of ABC is ______.

a link to how people are evaluated and rewarded

The first major step in implementing ABC is to identify the that will form the foundation for the system

activities

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

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

activity based management

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

activity cost pool

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

Individual customer minus individual customer equals customer margin

sales, costs

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.

second

To reconcile ABC product margin to net income ______.

subtract overhead costs not assigned to products

A company has four cost pools—customer relations, order size, product design and customer orders. Indirect labor is used 15% for customer relations, 30% for order size, and 35% for product design. The percentage is used for customer orders is:

20%

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 or 8000

When managers allocate organization-sustaining and unused capacity costs to products ______.

-incorrect decisions may be made -costs will be overstated

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

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

In ABC, the greater the number of activities, the ______.

-more costly the system will be to design -more accurate the costs are likely to be

An activity-based costing system ______.

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

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages?

$500,000

In activity-based costing, what costs are not assigned to products?

-Unused capacity -Organization-sustaining

Activities that could be combined into one batch-level activity are the number of ______.

-customer orders received -shipped orders

The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______.

Product and customer profitability reports

What is the benefit of a cross-functional team designing an ABC system?

Resistance to change is reduced.

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing