smartbook chapter 7

activity-based management

involves focusing on activities to eliminate waste, decrease processing time, and reduce defects

activity-based costing provides managers with information that affects _________.

both fixed and variable costs

individual product costs calculated using ABC are not listed on __________ reports.

external

ABC is generally used for ______ reporting

internal

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, the process of assigning overhead costs to activity cost pools is _________ stage allocation.

first

under activity-based costing, nonmanufacturing costs __________.

may be allocated to products based on cause

if some products are overcosted and some are undercosted the errors will _________.

offset each other in cost of goods sold and inventory valuations

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

overhead

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

traditional

the final step in implementing ABC is __________.

prepare management reports

a characteristic essential for successful implementation of ABC is _________.

a link to how people are evaluated and rewarded

select all that apply identifying the activities that will form the foundation for the system ________.

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

select all that apply activity-based management is focused on ___________.

-reducing defects -eliminating waste

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

activity

total cost of each activity divided by the total activity is the computation of __________.

activity rates

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

true or false: traditional cost systems tend to undercost standard products and overcost specialty products.

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

the first major step when implementing an ABC system is _________.

identify the activities

usually, traditional costing _________ high-volume products and __________ low-volume products.

overcosts; undercosts traditional costing uses a volume-related allocation base and assigns more costs to high-volume products, resulting in overcosting. in contrast, it assigns fewer costs to low-volume products, resulting in undercosting.

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

product and customer profitability reports

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

an activity-based costing system __________.

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

there are two types of nonmanufacturing costs that ABC systems assign to products

1.) ABC systems trace all direct nonmanufacturing costs to products. commissions paid to salespersons, shipping costs, and warranty repair costs are examples of nonmanufacturing costs that can be directly traced to individual products. 2.) ABC systems allocate indirect nonmanufacturing costs to products whenever the products have presumably caused the costs to be incurred

steps for implementing activity-based costing

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

activity-based costing differs from traditional absorption costing in three ways. in activity-based costing:

1.) nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis 2.) some manufacturing costs may be excluded from product costs 3.) numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity

activity-based costing (ABC)

a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs. it is ordinarily used as a supplement to a company's usual costing system. most organizations that use this have two costing systems - the official costing system that is used for preparing external financial reports and the activity-based costing system that is used for internal decision making and for managing activities

the most common reports prepared using ABC data are the product and customer ________ reports.

profitability

select all that apply what are some of the limitations of activity-based costing systems?

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

select all that apply costs are assigned and/or traced when computing product margin in a traditional cost system are ________.

-direct material -direct labor -manufacturing overhead

select all that apply activity-based costing only charges products for the cost of the capacity used because _____________.

-it results in a more stable unit product cost -products are only assigned the costs of resources they actually use

select all that apply an activity-based costing system ________________.

-uses numerous overhead cost pools -may exclude some manufacturing costs from product costs

select all that apply costs that can be easily traced to individual products include __________.

-warranty repair costs -sales commission -shipping costs

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

1,700 $425,000 / $250 = 1,700

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

cause-and-effect

three essential characteristics of a successful activity-based costing implementation:

1.) top managers must strongly support the ABC implementation because their leadership is instrumental in properly motivating all employees to embrace the need to change 2.) top managers should ensure that ABC data is linked to how people are evaluated and rewarded. if employees continue to be evaluated and rewarded using traditional (non-ABC) cost data, they will quickly get the message that ABC is not important and they will abandon it. 3.) a cross-functional team should be created to design and implement the ABC system