Chapter 7 SmartBook Assignment

ABC is generally used for ______ reporting. A) both internal and external B) internal C) external

B) internal

Overhead includes both manufacturing and nonmanufacturing costs under ______ costing. A) neither activity-based or traditional absorption B) activity-based C) traditional absorption D) both activity-based and traditional absorption

B) activity-based

An activity cost pool accumulates costs for ______ activity measure(s). A) one or more B) multiple C) exactly one

C) exactly one

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 ______. A) $450,000 B) $900,000 C) $2,250,000 D) $360,000

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

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _________-__________ ____________.

activity based management

ABC is not used for external reporting because _________ would not be comfortable using allocations based on employee interviews.

auditors

Time-driven activity-based costing (TDABC) performs _________ _________ to evaluate employee idle time.

capacity analysis

In activity-based costing, another term for allocation base or activity measure is ___________ ___________.

cost driver

True or False: A benefit of TDABC is that it only requires about half the number of employee interviews that are needed with traditional ABC.

false

True or False: In an activity-based costing system, it is best to combine activities that are not highly correlated.

false

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to _________.

increase

Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer _________.

margin

In activity-based costing, first-stage allocation assigns ________ costs to activity cost pools.

overhead

Activity-based costing uses numerous __________ cost pools.

overhead or activity

Activity rates are used to apply overhead costs to products and customers in the _________ -stage allocation.

second

All manufacturing costs are assigned to products in _________ costing.

traditional, absorption, or full

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.

Select all that apply. What are some of the limitations of activity-based costing systems? A) ABC requires substantial resources. B) Managers and employees may resist the change to ABC. C) ABC procedures produce numbers that do not match traditional costing. D) The benefits of accuracy always outweigh the costs.

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

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? A) Organization-sustaining B) Customer-sustaining C) Unit-level D) Product-sustaining E) Batch-level

A) Organization-sustaining

Which costing method assigns only manufacturing costs to products? A) Traditional absorption costing B) Neither traditional absorption nor activity-based costing C) Both traditional absorption and activity-based costing D) Activity-based costing

A) Traditional absorption costing

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 ______. A) 2,000 B) 1,700 C) 2,500 D) 4,250

B) 1,700 $425,000 ÷ $250 = 1,700

Select all that apply. Which of the following items are the same under both ABC and traditional costing? A) Product margins B) Total costs C) Net operating income D) Total sales

B) Total costs C) Net operating income D) Total sales

The best team to create an ABC system should include employees from ______. A) custodial B) legal C) marketing

C) marketing

Under activity-based costing, nonmanufacturing costs ______. A) are never assigned to products B) are always assigned to products, regardless of cause C) may be allocated to products based on cause D) are always treated as period costs

C) may be allocated to products based on cause

The basis of benchmarking is comparing ______. A) manufacturing and nonmanufacturing costs B) performance in different industries C) performance within the same industry D) traditional and ABC systems

C) performance within the same industry

The amount of time required to perform an activity is measured by a(n) ________ driver.

duration

External reports are _______ (more/less) detailed than internal reports.

less

Simple counts of the number of times an activity occurs are ________ drivers.

transaction

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

true

True or False: As the number of activities increases, the cost to implement an ABC system also increases.

true

True or False: Some manufacturing costs may be excluded from product cost when using ABC.

true

Power to run production equipment is a(n) _______ -level activity.

unit

Activity based costing provides managers with information that affects ______. A) only variable costs B) both fixed and variable costs C) only fixed costs D) neither fixed nor variable costs

B) both fixed and variable costs

Costs of unused or idle capacity are assigned to products when using a(n) __________ costing system.

absorption

The first major step in implementing ABC is to identify the ________ that will form the foundation for the system.

activities or activity

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 $ ______.

$175,000 $750,000 - $360,000 = $390,000 $390,000 - $215,000 = $175,000

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $ _______ per machine hour.

$30 $900,000 ÷ 30,000 = $30

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $ _______.

$7,800 ($65 × 120 = $7,800)

Select all that apply. When managers allocate organization-sustaining and unused capacity costs to products ______. A) costs will be overstated B) product margins will be overstated C) prices will be more accurate than under traditional costing D) incorrect decisions may be made

A) costs will be overstated D) incorrect decisions may be made

Select all that apply. Customer cost analysis using time-driven activity-based costing (TDABC) ______. A) enables estimating customer service employee needs B) helps manage customer mix C) does not require employee interviews D) uses estimates based on normal capacity

A) enables estimating customer service employee needs B) helps manage customer mix C) does not require employee interviews

Select all that apply. Time-driven activity-based costing (TDABC) ______. A) overcomes some important limitations of ABC B) requires extensive interviews with employees C) does not assume employees will self-report idle time D) does not use and "Other" cost pool

A) overcomes some important limitations of ABC C) does not assume employees will self-report idle time

A reason that activity-based costing is not often used for external reporting is ______. A) the ABC system may not conform to GAAP B) auditors prefer to base allocations on personnel interviews C) individual product costs need to be reported on external reports D) ABC product costs exclude nonmanufacturing costs

A) the ABC system may not conform to GAAP

When making decisions using ABC data ______. A) unavoidable fixed costs should be ignored B) all assigned costs are relevant C) all variable costs should be ignored

A) unavoidable fixed costs should be ignored

Select all that apply. Customer cost analysis using time-driven activity-based costing (TDABC) ______. A) quantifies used and unused capacity costs B) assists with measuring customer profitability C) uses estimates based on practical capacity D) requires interviewing customer service employees

B) assists with measuring customer profitability C) uses estimates based on practical capacity

Time-driven activity-based costing (TDABC) ______ require extensive interviews with employees. A) may sometimes B) does not C) does

B) does not

Select all that apply. Strengths of time-driven activity-based costing (TDABC) include ______. A) an increase in the amount of time spent on employee interviews B) employees do not have to self-report idle time C) it helps estimate the financial impact of aligning capacity with demand D) it is easy to update

B) employees do not have to self-report idle time C) it helps estimate the financial impact of aligning capacity with demand D) it is easy to update

Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews? A) Employees B) Board of directors C) Auditors D) Shareholders

C) Auditors

Activity-based costing data ______. A) only assigns relevant costs B) is well suited to decision making C) can be easily misinterpreted

C) can be easily misinterpreted

To assist in first-stage allocations in ABC, employees designated as indirect factory workers should provide the ______. A) wages received for each employee activity B) non-personnel costs distributed to each cost pool C) available capacity of the factory and equipment D) percentage of employee time spent for each activity pool

D) percentage of employee time spent for each activity pool

Customer service employees are a ______ cost. A) fixed B) mixed C) variable D) step-fixed

D) step-fixed

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $ _______.

$8,000 400 × $20 = $8,000

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $ _______.

$875. $200,000 ÷ 1,600 = $125 $125 × 7 = $875

To reconcile ABC product margin to net income ______. A) add overhead costs not assigned to products B) subtract overhead costs not assigned to products C) do nothing; product margin is equal to net income/loss

B) subtract overhead costs not assigned to products

In ABC, any event that causes consumption of overhead resources is a(n) _________.

activity

In activity-based costing, each cost pool accumulates costs that relate to a single ___________ measure in the ABC system.

activity

The greater number of activities in an ABC system, the (more/less) ________ costly it is for the company to develop.

more

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 _________ - ________ activities.

organization sustaining

Activity-based costing treats organization-sustaining costs as ___________ expenses.

period

Activity-based costing uses more cost _______ than traditional costing.

pools

The profit from a product is also called the ___________ ___________.

product margin

The most common reports prepared using ABC data are the product and customer _________ reports.

profit, margin, or profitability

Individual customer _________ minus individual customer ___________ equals customer margin.

sales ; costs

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

False - traditional systems undercost specialty products that tend to consume more overhead.

Activity-based costing ______ include activities that do not relate to the number of units produced. A) may B) may not

A) may

Individual product costs calculated using ABC are not listed on ______ reports. A) product cost B) external C) internal

B) external

A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs? A) $6,200 B) $8,000 C) $5,000 D) $800

A) $6,200 ($300 × $4) + ($500 × 10) = $6,200

Why is top management support needed when ABC is implemented? A) Management must deliver data needed to support ABC. B) Leadership is instrumental in motivating employees to embrace ABC. C) Management needs to create and design the ABC system.

B) Leadership is instrumental in motivating employees to embrace ABC.

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation. A) second B) first C) third D) fourth

B) first

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). A) $8 per customer call and $15 per development hour B) $11.11 per customer call or per development hour C) $20 per customer call and $25 per development hour

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

Which of the following is NOT an ABC level of activity? A) Employee B) Unit C) Organization D) Batch E) Customer

A) Employee

In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products? A) Manufacturing B) Nonmanufacturing C) Both manufacturing and nonmanufacturing

A) Manufacturing

Which of the following is not essential for the successful implementation of an ABC system? A) Top managers must design the ABC system. B) Top managers should ensure that ABC data is linked to how employees are evaluated and rewarded. C) A cross-functional team should be created to design and implement the ABC system. D) Top managers must support the ABC system.

A) Top managers must design the ABC system.

Select all that apply. What causes traditional and activity-based costing systems to report different product margins? A) Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. B) Traditional cost systems allocate all manufacturing overhead costs to products. C) The traditional cost system assigns period costs to all products that are produced during the period. D) The ABC system assigns non-manufacturing overhead costs to products on a cause-and-effect basis as appropriate.

A) Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. B) Traditional cost systems allocate all manufacturing overhead costs to products. D) The ABC system assigns non-manufacturing overhead costs to products on a cause-and-effect basis as appropriate.

A systematic approach that can identify improvement opportunities is ______. A) benchmarking B) activity analysis C) traditional costing D) process costing

A) benchmarking

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual customer sales is the number of ______. A) customer orders B) customers C) sales employees D) items sold

A) customer orders

The first major step when implementing an ABC system is ______. A) identify the activities B) compute the activity measure C) assign overhead costs D) classify cost pools

A) identify the activities

In activity-based costing, first-stage allocations are usually based on the results of ______. A) interviews with employees B) interviews with the top executive team C) using a traditional costing system

A) interviews with employees

Select all that apply. Activity-based costing only charges products for the cost of the capacity used because ______. A) it results in a more stable unit product cost B) assigning costs of unused capacity artificially reduces product cost per unit C) products are only assigned the costs of resources they actually use

A) it results in a more stable unit product cost C) products are only assigned the costs of resources they actually use

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity. A) more B) the same number of C) fewer

A) more

Select all that apply. In ABC, the greater the number of activities, the ______. A) more costly the system will be to design B) more accurate the costs are likely to be C) easier the system will be to implement and maintain

A) more costly the system will be to design B) more accurate the costs are likely to be

Costs that are totally unaffected by which products are made during a period are ______ costs. A) organization-sustaining B) manufacturing overhead C) batch-level D) unit-level E) customer-level

A) organization-sustaining

If ABC is not implemented correctly and organization-sustaining costs are included in product costs, then product costs will be ______ and margins will be ______. A) overstated; understated B) understated; overstated C) overstated; overstated D) understated; understated

A) overstated; understated

Select all that apply. An activity-based costing system ______. A) produces different numbers than a traditional system B) is costly to maintain C) requires substantial resources D) provides benefits of improved accuracy that always outweigh the costs

A) produces different numbers than a traditional system B) is costly to maintain C) requires substantial resources

Select all that apply. Customer-level activities include ______. A) sales calls B) advertising C) placing purchase orders D) mailing catalogs

A) sales calls D) mailing catalogs

Select all that apply. Costs that can be easily traced to individual products include ______. A) sales commission B) factory supervisor's salary C) warranty repair costs D) shipping costs

A) sales commission C) warranty repair costs D) shipping costs

Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation. A) second B) fourth C) third D) first

A) second

Select all that apply. An activity-based costing system ______. A) uses numerous overhead cost pools B) only assigns manufacturing costs to products C) is used for external reporting D) may exclude some manufacturing costs from product costs

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

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is: A) $120,000 B) $125,000 C) $500,000 D) $150,000

B) $125,000 $500,000 × 0.25 = $125,000

Which costing system does not assign selling and administrative costs to products when computing product margin? A) Activity-based B) Traditional C) Neither traditional nor activity-based D) Both traditional and activity-based

B) Traditional

Select all that apply. Costs assigned and/or traced when computing product margin in a traditional cost system are ______. A) selling and administrative B) direct labor C) direct material D) manufacturing overhead

B) direct labor C) direct material D) manufacturing overhead

Select all that apply. In the 19th and 20th centuries, cost systems relied on allocation bases such as ______. A) the number of products made B) machine hours C) the number of products sold D) labor hours

B) machine hours D) labor hours

An example of a transaction driver is the ______. A) number of hours spent setting up equipment B) number of bills sent out to a customer C) time spent preparing invoices D) time spent repairing equipment

B) number of bills sent out to a customer

Usually, traditional costing ______ high-volume products and ______ low-volume products. A) overcosts; overcosts B) overcosts; undercosts C) undercosts; overcosts D) undercosts; undercosts

B) overcosts; undercosts

An example of a duration driver is the ______. A) number of children who attended day care orientation B) time spent preparing invoices C) number of employees who received training D) number of bills sent out to a customer

B) time spent preparing invoices

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages? A) $80,000 B) $200,000 C) $500,000 D) $800,000

C) $500,000 $200,000 ÷ 0.40 = $500,000

A company has four cost pools—customer relations, order size, product design and customer orders. Indirect labor is used 15% for customer relations, 30% for order size, and 35% for product design. The percentage is used for customer orders is: A) 25% B) 10% C) 20% D) 40%

C) 20% 100% - (15% + 30% + 35%) = 20%

Select all that apply. In activity-based costing, what costs are not assigned to products? A) Sales commissions B) Direct labor C) Organization-sustaining D) Unused capacity

C) Organization-sustaining D) Unused capacity

Which of the following help companies channel their resources into the most profitable growth opportunities? A) Balance sheet B) Activity based costing allocation reports C) Product and customer profitability reports D) Income statements

C) Product and customer profitability reports

What is the benefit of a cross-functional team designing an ABC system? A) The team can evaluate and reward employees. B) The team feels powerful and can make executive decisions. C) Resistance to change is reduced.

C) Resistance to change is reduced.

What level of activity is performed each time an item of a product is produced? A) Batch-level B) Product-level C) Unit-level D) Customer-level

C) Unit-level

In activity-based costing, the consumption of overhead resources is caused by ______. A) material purchases B) direct labor C) an activity D) overhead

C) an activity

In activity based costing another term for activity measure is ______. A) volume B) cost pool C) cost driver D) overhead

C) cost driver

In the 19th and 20th centuries ______. A) the most common allocation base was number of units produced B) departmental overhead rates were rarely used C) direct labor hours was a satisfactory overhead allocation base

C) direct labor hours was a satisfactory overhead allocation base

Select all that apply. ABC does not conform to GAAP because it ______. A) excludes some non-manufacturing costs B) includes direct materials and direct labor C) includes some non-manufacturing costs D) excludes some manufacturing costs

C) includes some non-manufacturing costs D) excludes some manufacturing costs

The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______. A) direct labor hours B) customer orders C) machine hours D) product designs

C) machine hours

The final step in implementing ABC is ______. A) calculate activity rates B) A assign overhead costs to cost objects C) prepare management reports

C) prepare management reports

In activity-based costing, ______ are different from those calculated using traditional costing. A) sales B) direct labor costs C) product margins D) net operating incomes

C) product margins

Traditional cost systems allocate all manufacturing costs using ______ allocation base(s). A) activity-related B) materials-related C) volume-related D) overhead-related

C) volume-related

Under activity-based costing, overhead includes ______. A) both direct and indirect costs B) only indirect manufacturing costs C) only indirect non-manufacturing costs D) all indirect costs

D) all indirect costs

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity. A) batch-level B) product-level C) unit-level D) customer-level

D) customer-level

In traditional costing, ______ costs are assigned to products. A) both manufacturing and selling and administrative B) neither manufacturing nor selling and administrative C) only selling and administrative D) only manufacturing

D) only manufacturing

A _____ ______ is a function of sales and the direct and indirect costs that the product causes. A) gross margin B) net profit C) contribution margin D) product margin

D) product margin

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of ______. A) active customers B) products designed C) employees D) units produced

D) units produced

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

true