UDayton ACC 208 Block Exam 2 Study Guide

Organization-sustaining activities include:

heating a factory setting up a computer network

An activity cost pool accumulates costs for

exactly one activity measure

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by:

($100,000 x 10% x $60,000/$100,000) = $6,000 $6,000 +$5,000 = $11,000

Typical cost drivers include:

- computer time - flight-hours - machine-hours

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.

absorption costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

traceable fixed cost

A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated (fixed cost for the store)

common fixed cost

A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments. (fixed cost for each product line sold)

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.

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

Auditors

Which of the following is NOT a common mistake made in preparing segmented income statements?

Computing contribution margin instead of gross margin

(T/F): Traditional cost systems tend to overcost standard products and overcost specialty products.

False

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

the predetermined overhead rate per direct labor dollar for Dept. A is: Est. Manufacturing Overhead: $338,000 Est. Direct Labor Hours: 130,000

POHR = Est. Manufacturing OH / Est. DLH = $338,000 / 130,000 = $2.60 per DLH

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

Product and customer profitability reports

Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing?

The salary of the manager at a hair salon (would be considered OH)

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

Top managers must design the ABC system.

(T/F): Activity-based costing can be used for process improvement.

True

(T/F): Under-applied or over-applied overhead occurs because overhead is applied to jobs using a predetermined rate based on estimates of costs and activity levels.

True

A cost driver is:

a factor that causes overhead costs to occur

A traceable fixed cost:

a fixed cost that is incurred because of the existence of the segment

A characteristic essential for successful implementation of ABC is:

a link to how people are evaluated and rewarded

Cost-plus pricing occurs when:

a markup percentage is added to the cost of a job

Regardless of whether the product consumes the resources associated with those costs, all manufacturing costs are allocated to products in an

absorption costing system

In ABC, any event that causes consumption of overhead resources is an

activity

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is an

activity cost pool

When a company creates overhead rates based on the actions it performs, it is employing an approach called

activity-based costing

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

Usually, traditional costing over-costs high-volume products

and under-costs low-volume products

Activity-based costing data

can be easily misinterpreted

Allocation bases that do not drive overhead costs:

can cause product costs to become distorted

In activity-based costing, non-manufacturing and manufacturing costs are assigned to products on a

cause and effect basis

An allocation base should be:

cost driver

Activity-based costing uses more

cost pools than traditional based costing

Incorrectly or arbitrarily assigning common costs to segments:

could reduce the overall profits of the company holds managers responsible for costs they cannot control distorts the profitability of segments

GAAP and IFRS rules:

create problems in reconciling internal and external reports require that the same method be used for both internal and external segment reporting require segmented financial data be included in annual reports

The most common management reports using ABC data are:

customer & product profitability

A cost pool including costs to entertain clients and make sales calls is a

customer-level activity

Underapplied or overapplied overhead is the:

difference between overhead applied to work in process and actual overhead (Applied - Actual)

Costs assigned and/or traced when computing product margin in a traditional cost system are:

direct labor direct materials manufacturing overhead

Which of the following is only true in a multiple predetermined overhead rate system?

each department has its own POHR

Activity-based management is focused on:

eliminating waste reducing defects

In a system that uses multiple predetermined overhead rates, overhead is applied:

in each department as jobs proceed through the department

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

incorrect decisions may be made costs will be overstated

The adjustment for underapplied overhead:

increases cost of goods sold and decreases net income

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

In traditional costing, ______ costs are assigned to products.

manufacturing

In traditional costing,

manufacturing costs are assigned to products

An activity-based costing system:

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

Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is:

more complex, but more accurate

Compared to traditional systems, activity-based costing uses

more cost pools and unique measures of activity.

Identifying the activities that will form the foundation for the system:

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

Common mistakes made by companies when assigning costs to segments include:

omitting costs that should be included inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs

What type of activities are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are produced?

organization-sustaining

Activity-based costing uses numerous

overhead cost pools

In activity-based costing, first-stage allocation assigns

overhead costs to activity cost pools

Which of the following would be considered direct materials in a service firm that uses job-order costing?

paperwork at a law firm (know difference btwn materials and assets)

Unit-level activities are:

proportional to the number of units produced

A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because it:

reflects differences in how overhead costs are incurred within departments

Customer-level activities include:

sales calls mailing catalogs

Activity rates are used to apply overhead costs to products and customers in the

second-stage allocation

Costs that can be traced directly to a segment:

should not be allocated to other segments

When all of a company's job cost sheets are viewed collectively, they form what is known as a

subsidiary ledger

To reconcile ABC product margin to net income:

subtract overhead costs not assigned to products

The general guideline is to treat as traceable only those costs

that would disappear over time if the segment was discontinued

Discontinuing a profitable segment results in:

the loss of the segment's revenues a reduction in the overall profits of the company

Which of the following would not be considered a job in a service firm that uses job-order costing?

the tax department of an accounting firm

Segment contribution margin equals segment revenue minus

the variable expenses for the segment

Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a:

traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

Which costing method assigns only manufacturing costs to products?

traditional absorption costing

When making decisions using ABC data:

unavoidable fixed costs should be ignored

Using absorption costing for segmented income statements can lead to:

under-costing of segments omission of upstream and downstream costs

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

unit-level

Power to run production equipment would be a

unit-level activity