CH 4 SB

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 $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.

examples of facility-level activities?

Paying factory insurance Property taxes on plant

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

activity cost pool

How much of an activity is carried out is expressed by a(n) ______, which is used as the allocation base for applying overhead costs to products and services.

activity measure

A predetermined overhead rate in an activity-based costing system is called a(n) ___ ___

activity rate

Total cost of each activity divided by the total activity is the computation of ______.

activity rates

When a company has extensive product diversity and complex overhead, it is best to assign overhead using ______.

activity-based costing

In activity-based costing an activity measure is

an allocation base

Processing purchase orders is considered to be a(n) ______-level activity.

batch

Costs that cannot be traced on a cause-and-effect basis to individual products are ______-level costs.

facility

When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of ___ ___ ____

facility level costs

Benefits of activity-based costing include ______.

helping target areas for process improvement more accurate product costs helping managers understand the nature of overhead costs

Using direct-labor hours or another volume based cost driver to assign overhead ______.

may result in selling products at a loss ignores other significant causes of overhead may result in overcharging customers for products

When cost systems were developed in the 1800's, most companies ______.

produced a small number of similar products focused on simplicity

___ ___ activities relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured.

product level

A plantwide overhead rate based on direct labor hours is ______ appropriate.

sometimes A plantwide rate based on direct labor hours is appropriate if there is a high correlation between overhead and direct labor. However, in today's environment, that is often not the case.

The activity rate is computed by dividing the ______ by the ______.

total cost in the activity cost pool; activity level in the activity cost pool

t/f: On an economywide basis, direct labor and overhead costs have been moving in opposite directions for a long time.

true

t/f: Technology has made more complex costing systems less expensive to develop and maintain.

true

An activity that must be done for each item produced is a ___ ___

unit level

Activity-based costing improves the accuracy of product costs by ______.

using cost pools that are more homogeneous than departmental cost pools increasing the number of cost pools used to accumulate overhead cost using a variety of activity measures to assign overhead costs to produc

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is

($900,000 ÷ 30,000) × 12,000 = $360,000

t/f: Most companies throughout the world have moved away from using direct labor hours or machine hours to allocate overhead.

false

Activity-cost rates may either be computed per product or per activity.

false Activity-cost rates are computed per activity and assigned to products based on the use by each product.