ACCT II Ch. 4
Once Stage 2 allocation has been completed it is possible to compute total ______.
manufacturing overhead per product
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned _____ % of the total set up
30 % 8,250 setups / 27,500 total setups
Activity-based costing systems typically include ______ cost drivers.
both volume- and non-volume-based
A local tour company offers charter buses to corporations who have conventions or meetings in the city. Under activity-based costing, renting a bus to a corporation is a(n) _____
group-level activity
Activity-based management focuses on ______.
improving operations increasing efficiency Reason: Activity-based management is focused on process improvements. Reason: Activity-based management focuses on decreasing, not increasing, processing time.
Scrapped or discarded products and rework are ______ costs.
internal failure
A just-in-time (JIT) system ______.
is used to help reduce costs is a demand-pull system
A system that pulls materials and products through the manufacturing system based on customer demand is called ______.
just-in-time
Indirect costs are also referred to as _______
overhead costs
Implementing an ABC system ______.
provides information for cost management
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $_________ in total overhead
$1,200 Reason: $400 total direct labor cost x $3 per direct labor *** BASED on direct labor COST (not direct labor HOURS)
Direct labor hours and machine hours are both examples of _______ cost drivers
volume- based
The formula to apply overhead to products is ______.
activity rate times activity
A technique that attempts to assign overhead costs to products based on the actions they require is called _________
activity-based costing
Improving operations and reducing costs is the focus of_____
activity-based management
Which of the following is NOT a volume-based cost driver?
Machine setups Reason: This is an ABC batch-level cost driver
The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called________ or cost planning
Target Costin
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of________
batch-level activities
A group-level activity for a service company is the same as a(n) ____ -level activity for a manufacturing company.
batch-level activity
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity.
service-level activity
A proactive approach managers use to determine what costs should be is called ______.
target costing
Indirect costs can be assigned to products or services using ______.
the activity rate method the activity proportion method
The activity rate is computed by dividing the ______ by the ______.
total activity cost; total cost driver
A management system that focuses on continually improving production processes is called ______.
total quality management
An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called ________
total quality management
To ensure that activities deliver what matters to customers, the concept of the __________ begins with the customer and works backward.
value chain
The perceived value of a product or service to the customer is enhanced by _____
value-added activities
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?
$280 Reason: $35,000 ÷ 5,000 = $7 per direct labor hour $7 × 40 direct labor hours = $280. *** based on direct labor HOURS
Under activity-based costing, a degree program at a university is considered a(n)
An existing ABC system can report sustainability-related information. **** existing, WELL-DESIGNED ABC system
Which of the following statements are true?
Quality training is an example of a prevention cost. Most experts believe that incurring prevention costs is the most effective way to manage quality costs.
Which of the following is NOT a value-added activity?
Storing inventory ***doesn't add value for the customer
True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
TRUE Reason: The only thing that changes is the amount of overhead per unit.
Indirect costs ______.
are not easily traced to products or services
Non-volume-based cost drivers ______.
are used in ABC systems allow more indirect costs to be allocated to products
The final step in activity-based costing is ______.
assigning indirect costs to products or services
Under activity-based costing, a degree program at a university is considered a(n) _________
service or product
The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the _______
value chain
What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?
batch *** key word "GROUP of units"
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
$19.53 Reason: $625,000/(8,000 × 4) = $19.53 4 hrs PER widget produced
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $
$2 predet. OH rate= total OH cost / total cost driver = $500,000 total OH cost /250,000 machine hours = $2 per machine hr
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.
$73,160 to Model XLT and $44,840 to Model TXT Reason: 620 ÷ 1000 or 62% × $118,000 = $73,160 to Model XLT 380 ÷ 1000 or 38% × $118,000 = $44,840 to Model TXT.
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. The activity rates are ______.
$8 per customer call and $15 per development hour Reason: $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.
Which of the following statements are true?
Appraisal costs identify defective products before they get to the customer. Appraisal costs are also known as inspection costs. ***** Appraisal or inspection costs are incurred to identify defective products during the production process, including the cost of the quality control department and employees who test the product. Unfortunately, inspection activities do not address what's causing the defect, which means the defect could continue to occur.
Which of the following statements are true?
Before implementing ABC, a company should weigh the benefits against the costs. The support of upper management is required for successful ABC implementation. ********: Implementing ABC requires a great deal of time and effort. Managing and reducing costs is the true benefit of ABC.
True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.
FALSE Reason: While ABC was designed to provide cost information, it can be adapted to provide sustainability-related information.
What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?
Facility-level ***performed for company as a whole
True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.
False Reason: This in itself is not a good reason to implement ABC. The real benefit is the information it provides to managers to pursue cost management.
A group of similar activities that have been combined together is called an _______
activity cost pool
The percentage of the total cost driver that is attributable to each product line is called a(n) _______-
activity proportion
A predetermined overhead rate in an activity-based costing system is called a(n) _________
activity rate
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.
activity-based
Costs incurred to identify defective products before they get to the customer are called_____
appraisal costs
At a minimum, an ABC system should have ______.
at least one non-unit-level activity cost pool
The formula to compute activity proportion is ______.
cost driver for product ÷ cost driver for all products
A company adds a markup to expenses required to produce the product when using ______ which is in stark contrast to target costing
cost-plus pricing
Determining what a product costs and adding a markup is called ______.
cost-plus pricing
Activities that occur regardless of how many products are produced or how many batches are run or units made are ________
facility-level activities
The duration of a product from its infancy through its eventual decline is represented by the product ______
life cycle
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______.
life cycle costs
To calculate manufacturing overhead cost per unit using ABC, divide the total ______.
manufacturing overhead cost by the number of units produced
Inspection costs ______.
may lead to internal failure costs
Total manufacturing overhead under activity-based costing consists of all ______.
overhead assigned during Stage 2 allocations
The perceived value of a product or service to the customer is enhanced by
prevention costs
Activities performed to design a new type of service to be offered are ______-level activities.
product
Research and development is a(n) _____
product-level activity
Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. The activity rate for this activity is ______.
$2.10 Reason: $2,100,000 ÷ 1,000,000 = $2.10 per machine hour **** Machine hour related
A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.
$6,000 Reason: $2 × 3,000 = $6,000
Which of the following statements are true?
Implementing an ABC system is NOT a trivial task. Reason: Implementing ABC requires a great deal of time and effort. (trivial = of little value or importance) Managing and reducing costs is the true benefit of ABC. ***** The benefits of ABC and other methods must be weighed against the cost. Implementing ABC requires a great deal of time and effort from many employees across the organization. (not just accountants)