Chapter 7

A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $ (1). (Enter your answer as a whole number.)

1. 175,000

The first major step in implementing ABC is to identify the (1) that will form the foundation for the system. (Enter only one word per blank.)

1. activities

In ABC, any event that causes consumption of overhead resources is a(n) (1). (Enter only one word per blank.)

1. activity

In activity-based costing, each cost pool accumulates costs that relate to a single (1) measure in the ABC system. (Enter only one word per blank.)

1. activity

In activity-based costing, another term for allocation base or activity measure is (1) (2). (Enter only one word per blank.)

1. cost 2. driver

Power to run production equipment is a(n) (1)-level activity. (Enter only one word per blank.)

1. unit

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

True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.

False *Reason: The opposite is true - traditional systems undercost specialty products that tend to consume more overhead.

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True

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

Unit-level

A characteristic essential for successful implementation of ABC is ______.

a link to how people are evaluated and rewarded

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

activity cost pool

In ABC, the term cost driver is used to refer to a(n) __________ __________ because it should "drive" the cost being allocated .

activity measure

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

activity rates

In activity-based costing, the consumption of overhead resources is caused by ______.

an activity

In activity based costing another term for activity measure is ______.

cost driver

Select all that apply The most common management reports using ABC data are ______.

customer profitability product profitability

An activity cost pool accumulates costs for ______ activity measure(s).

exactly one

Individual product costs calculated using ABC are not listed on ______ reports.

external

The first major step when implementing an ABC system is ______.

identify the activities

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 Customer-level activities include ______.

mailing catalogs sales calls

Select all that apply Costs assigned and/or traced when computing product margin in a traditional cost system are ______.

manufacturing overhead direct material direct labor

An example of a transaction driver is the ______.

number of bills sent out to a customer

Select all that apply Identifying the activities that will form the foundation for the system ______.

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

Select all that apply An activity-based costing system ______.

uses numerous overhead cost pools may exclude some manufacturing costs from product costs is costly to maintain produces different numbers than a traditional system requires substantial resources

Select all that apply Activity-based costing is not used for external reporting because ______.

ABC does not comply with GAAP external reports are less detailed than internal reports it is difficult to make changes in the existing accounting system

Select all that apply What are some of the limitations of activity-based costing systems?

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

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

1,700 Reason: $425,000 ÷ $250 = 1,700

Costs of unused or idle capacity are assigned to products when using a(n) (1) costing system. (Enter only one word per blank.)

1. absorption

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of (1)-(2) (3). (Enter one word per blank.)

1. activity 2. based 3. management

Under activity-based costing, nonmanufacturing costs ______.

may be allocated to products based on cause

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.

more

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.

first

If some products are overcosted and some are undercosted the errors will ______.

offset each other in cost of goods sold and inventory valuations

Unit-level activities are ______.

proportional to the number of units produced

Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.

second

Activity-based costing uses numerous (1) cost pools. (Enter only one per blank.)

1. overhead

In activity-based costing, first-stage allocation assigns (1) costs to activity cost pools. (Enter only one word per blank)

1. overhead

Activity-based costing uses more cost (1) than traditional costing. (Enter only one word per blank.)

1. pools

The most common reports prepared using ABC data are the product and customer (1) reports. (Enter only one word per blank.)

1. profitability

Activity rates are used to apply overhead costs to products and customers in the (1)-stage allocation. (Enter only one word per blank).

1. second

Simple counts of the number of times an activity occurs are (1) drivers. (Enter only one word per blank.)

1. transaction

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

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

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

Product and customer profitability reports

True or false: Activity-based costing can be used for process improvement.

True

Click and drag on elements in order Place the steps for implementing ABC in order.

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.

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to (1). (Enter only one word per blank.)

1. increase

External reports are (1) (more/less) detailed than internal reports. (Enter only one word per blank.)

1. less

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or (1)-(2) activities. (Enter only one word per blank.)

1. organization 2. sustaining

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

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

Top managers must design the ABC system.

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

Traditional

Some manufacturing costs may be excluded from product costs when using ______ costing.

activity-based

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.

customer-level

Usually, traditional costing ______ high-volume products and ______ low-volume products.

overcosts; undercosts *Reason: 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.

The final step in implementing ABC is ______.

prepare management reports

Select all that apply Activity-based management is focused on ______.

reducing defects eliminating waste

Select all that apply Costs that can be easily traced to individual products include ______.

sales commission shipping costs warranty repair costs

Select all that apply Organization-sustaining activities include ______.

setting up a computer network heating a factory preparing annual reports

To reconcile ABC product margin to net income ______.

subtract overhead costs not assigned to products