ch 7
internal
activity-based costing is designed to be used for ________________decision making
capacity they use
in activity-based costing, products are charged only for the cost of the _____________________—not for the cost of the capacity they don't use
Benchmarking
systematic approach to identifying the activities with the greatest room for improvement
entire cost
ABC includes manufacturing and nonmanufacturing costs when calculating the _______________of a product rather than just its manufacturing cost.
decision making
ABC is infrequently used for external reports for a number of reasons: First, external reports are less detailed than internal reports prepared for __________________________
allocations that are based on interviews
ABC is infrequently used for external reports for a number of reasons: Fourth, auditors are likely to be uncomfortable with ____________________________________- with the company's personnel.
individual product costs
ABC is infrequently used for external reports for a number of reasons: On the external reports, ________________________________ are not reported. Cost of goods sold and inventory valuations are disclosed, but they are not broken down by product
caused by products
ABC product cost calculations include all direct costs that can be traced to products and all indirect costs that are _______________________
nonmanufacturing costs
Commissions paid to salespersons, shipping costs, and warranty repair costs are examples of ______________________________________ that can be directly traced to individual products.
products
Customer Relations activity is a customer-level activity and the Other activity is an organization-sustaining activity—neither activity is caused by _______________________
substantial resources
Implementing an activity-based costing system is a major project that requires __________________________
cause-and-effect basis
In activity-based costing: Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a ____________________________. Some manufacturing costs may be excluded from product costs. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.
manufacturing costs
In activity-based costing: Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. Some ________________________ may be excluded from product costs. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.
Numerous overhead cost pools
In activity-based costing: Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. Some manufacturing costs may be excluded from product costs. __________________________________ are used, each of which is allocated to products and other cost objects using its own unique measure of activity.
overstated costs, understated margins
In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system—including the organization-sustaining costs and unused capacity costs. This results in ______________________ and ________________________________ and mistakes in pricing and other critical decisions.
manufacturing overhead costs
three reasons why the traditional and activity-based costing systems report different product margins: traditional cost system allocates all _____________________________ to products forces both products to absorb all manufacturing overhead costs regardless of whether they actually consumed the costs that were allocated to them
Activity-based costing
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.
total activity
activity rates are computed by dividing the total cost for each activity by its _________________
second-stage allocation
activity rates are used to apply overhead costs to products and customers.
do not
activity-based costing defines five levels of activity—unit-level, batch-level, product-level, customer-level, and organization-sustaining—that largely ____________________ relate to the volume of units produced
organization-sustaining costs and unused capacity costs
activity-based costing systems purposely do not assign two types of manufacturing overhead costs to products—___________________________________________________________________ (also called idle capacity costs)
period expenses
activity-based costing systems treat these types of organization-sustaining costs as ________________________ rather than arbitrarily assigning them to products
activity measure
an allocation base in an activity-based costing system
activity
any event that causes the consumption of overhead resources.
Organization-sustaining activities
are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. This category includes activities such as heating the factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports to shareholders, and so on.
Unit-level activities
are performed each time a unit is produced proportional to the number of units produced For example, providing power to run processing equipment would be THIS because power tends to be consumed in proportion to the number of units produced.
Transaction drivers
are simple counts of the number of times an activity occurs, such as the number of bills sent out to customers
Benchmarking
based on comparing the performance in an organization with the performance of other, similar organizations known for their outstanding performance
improve
first step in any improvement program is to decide what to ___________
second-stage allocation
fourth step in the implementation of activity-based costing is called ________________________________
unavoidable fixed costs
if an ABC system assigns some ________________________________to products or customers, those costs should be ignored when making decisions with respect to those cost objects
stable unit product costs
in activity-based costing, products are charged only for the cost of the capacity they use This provides more _____________________________ and is consistent with the goal of assigning to products only the costs of the resources that they use.
activity-based management
involves focusing on activities to eliminate waste, decrease processing time, and reduce defects
Duration drivers
measure the amount of time required to perform an activity, such as the time spent preparing individual bills for customers
not allocated
organization-sustaining costs are assigned to the Other cost pool and are ________________________ to products
Batch-level activities
performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, tasks such as placing purchase orders, setting up equipment, and arranging for shipments to customers are THIS
first-stage allocation
process of assigning functionally organized overhead costs derived from a company's general ledger to the activity cost pools
Customer-level activities
relate to specific customers and include activities such as sales calls, catalog mailings, and general technical support that are not tied to any specific product.
Product-level activities
relate to specific products and typically must be carried out regardless of how many batches are run or units of product are produced or sold. For example, activities such as designing a product, advertising a product, and maintaining a product manager and staff are all THIS
included
tapping the knowledge of cross-functional managers lessens their resistance to ABC because they feel _____________in the implementation process
managers must strongly support the ABC implementation managers should ensure that ABC data is linked to how people are evaluated and rewarded cross-functional team should be created to design and implement the ABC system
three essential characteristics of a successful activity-based costing implementation
cause-and-effect
three reasons why the traditional and activity-based costing systems report different product margins: ABC system assigns the nonmanufacturing overhead costs caused by products to those products on a _______________________ basis
volume-related allocation base, high-volume products, low-volume products
three reasons why the traditional and activity-based costing systems report different product margins: traditional cost system allocates all of the manufacturing overhead costs using a _________________________________—machine-hours—that may or may not reflect what actually causes the costs traditional cost systems overcost ________________________ (such as the standard stanchions) and undercost ______________________________ (such as the custom compass housings) because they assign batch-level and product-level costs using volume-related allocation bases
transaction drivers and duration drivers
two most common types of activity measures are ________________________________________
direct nonmanufacturing costs, indirect nonmanufacturing costs
two types of nonmanufacturing costs that ABC systems assign to products?
cost driver
used to refer to an activity measure because the activity measure should "drive" the cost being allocated
misinterpreted
Activity-based costing data can easily be ______________________________and must be used with care when used in making decisions
traditional costing systems
Activity-based costing produces numbers, such as product margins, that are at odds with the numbers produced by _________________________________-, it changes the game which people do not like
two costing systems
Most organizations that use activity-based costing have _____________________—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
activities, activity cost pools, and activity measures
Steps for Implementing Activity-Based Costing: 1. Define _______________________________________________. 2. Assign overhead costs to activity cost pools. 3. Calculate activity rates. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
activity cost pools
Steps for Implementing Activity-Based Costing: 1. Define activities, activity cost pools, and activity measures. 2. Assign overhead costs to ______________________. 3. Calculate activity rates. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
activity rates
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 ___________________. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
cost objects
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 ________________________. 5. Prepare management reports.
management reports
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 ______________________________.
customer
The Customer Relations cost pool represents a ___________-level activity
more cost pools and unique measures of activity
The activity-based approach has appeal in today's business environment because it uses _____________________________________ to better understand the costs of managing and sustaining product diversity
costs
The benefits of increased accuracy may not outweigh these ___________ of implementing and maintaining an ABC system
organization-sustaining cost
The cost of this production facility is treated as an __________________________________ because there is no way to avoid even a portion of this cost if a particular product or customer were to be dropped
cost
The greater the number of sheets used to fill out production orders and the greater the amount of time devoted to filling out such orders, the greater the __________
product and customer profitability reports
The most common management reports prepared with ABC data are __________________________________________
ABC
The need to distinguish between manufacturing and nonmanufacturing costs disappears in _______
total amount of overhead cost
The total amount of overhead assigned to products does not match the __________________________________ in the ABC system because the ABC team purposely did not assign the Customer Relations and Other costs to products
not
These costs mainly consist of organization-sustaining costs and the costs of unused, idle capacity. These costs will __________be assigned to products because they represent resources that are not consumed by products.
unit
This is a _______-level activity because each unit requires some of these resources
product
This is a _____________-level activity because the amount of design work on a new product does not depend on the number of units ultimately ordered or batches ultimately run
overcosting, undercosting
Traditional cost accounting methods results in ___________________high-volume products and _______________________ low-volume products and can lead to mistakes when making decisions
combining activities
When _____________________________ in an ABC system, activities should be grouped together at the appropriate level
activity rates
________________- computed in activity-based costing can provide valuable clues concerning where there is waste and opportunity for improvement
Activity-based costing
______________________ is ordinarily used as a supplement to, rather than as a replacement for, a company's usual costing system
duration drivers, transaction drivers
_______________________ are more accurate measures of resource consumption than transaction drivers, but they take more effort to record. For that reason, _________________________ are often used in practice
Cost objects
________________________ such as products generate activities. For example, a customer order for a custom compass housing requires the activity of preparing a production order
General ledgers
___________________________- usually classify costs within the departments where the costs are incurred
Activity-based costing
____________________________ attempts to trace through these relationships to identify how products and customers affect costs
Activity-based costing
__________________________________, thanks to advances in technology that make more complex cost systems feasible, provides an alternative to the traditional plantwide and departmental approaches to defining cost pools and selecting allocation bases
Organization-sustaining costs
__________________________________________ include costs such as the factory security guard's wages, the plant controller's salary, and the cost of supplies used by the plant manager's secretary.
activity cost pool
a "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system
batch
a ___________-level activity because each order generates work that occurs regardless of whether the order is for one unit or 1,000 units.