Managerial Accounting Ch 7 connect

Activity based costing uses numerous __________ cost pools

activity

ABC systems assign nonmanufacturing overhead on a(n) __________-and-___________ basis

cause / effect

In activity based costing another term for activity measure is:

cost driver

Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews?

Auditors

Why is ABC more costly than the traditional costing system?

Numerous activity measures must be collected, checked, and entered into the system

What type of costs are unaffected by which products are made during a period?

Organization Sustaining costs

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

In activity-based costing, what costs are not assigned to products?

Organization-sustaining and unused capacity

Managers may make the mistake of assigning idle costs and organization-sustaining costs to products, resulting in _________ product costs and ________ product margins.

Overstated / understated

Activity measure

is an allocation base in an activity based costing system, aka cost driver

Activity

is any event that causes the consumption of overhead resources

Duration driver

measures the amount of time to perform an activity

Activity based costing treats organization sustaining costs as ___________ _______

"period costs" or expenses rather than product costs

Activity-based costing is NOT used for external reporting because:

1. ABC doesn't comply with GAAP 2. It is difficult to make changes in the existing accounting system 3. External reports are less detailed than internal reports

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

3 reasons why ABC reports different numbers than traditional costing are:

1. Traditional cost system allocates all manufacturing overhead costs to products 2. Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base 3. The ABC system assigns non manufacturing overhead costs to products o a cause-and-effect basis as appropriate

Which reports are the MOST common management reports using ABC data?

Product profitability and Customer profitability

Which stage in activity based costing uses activity rates to apply overhead costs to products?

Second stage allocation

What manufacturing overhead costs are not assigned to products in activity based costing?

The costs of idle capacity and the costs of organization-sustaining activities

In ABC the greater the number of activities:

The more accurate the costs are likely to be, but it's a complex system involving large numbers of activities which is costly to design, implement, maintain and use.

When using a traditional cost system, standard, _________-volume products are generally overcosted and custom, _______-volume products are often undercosted.

high / low

ABC is generally used for _____ reporting

internal

____________ ______________ has its own unique measure of activity

Cost Pool

An ABC system usually ________ a traditional cost system

supplements

Which departments should be included in the design of an ABC system?

Accounting, Engineering, Marketing

Which costing method assigns both manufacturing and nonmanufacturing cost to products?

Activity based costing

An activity measure in activity based costing is used as a(n) _____________ base

Allocation

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ____________ -level activities

Batch

The number of shipped orders and the number of customer orders can be combined into one ________-level activity.

Batch

Which costs are assigned and/or traced when computing product margin in a traditional cost system?

Direct material, direct labor, and manufacturing overhead

Activity based management is focused on which of the following activities?

Eliminating waste, decreasing processing time and reducing defects

In activity-based costing, the first stage allocations are often based on results of interviews with _________

Employees

Organization Sustaining ABC Example

Ex.) Factory Cooling System

Batch level ABC Example

Ex.) Machine set- up

Product Level ABC Example

Ex.) Product Design

Customer Level ABC Example

Ex.) Sales Calls, catalog mailings, general technical support

Organization- sustaining activities (EX.):

Ex.) heating a factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports to shareholders, etc.

Unit Level ABC Example

Ex.) power to run production equipment

In a traditional cost accounting system what type of costs are assigned to products even if the costs are NOT caused by the products?

Manufacturing

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

Margin

The best team to create an ABC system should include employees from which department?

Marketing

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing

Simple counts of the number of times an activity occurs are __________ drivers

Transaction

Activity cost pool

a "bucket" which costs are accumulated that relate to a single activity measure in the ABC system

In ABC an event that causes consumption of overhead resources is a(n) __________

activity

Under activity based costing, overhead includes

all indirect costs

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

overhead

Designing and advertising a product are al _________ - level activities

product

Activity based costing only charges products for the cost of the capacity used because

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

Unit Level activities are

proportional to the number of units produced

Transaction driver

simple counts of the number of times an activity occurs

Traditional cost systems allocate all manufacturing costs using _______ allocation base(s)

volume-related