ACC 212- CHAPTER 4
ex of non volume based cost driver
# of batches, set up time, # of quality inspections
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $_______ in total overhead
1200
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $_____
2
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ________% of the total setup cost.
30
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $___________ per setup.
500
A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______. $3,000 $8,000 $6,000 $2,000
6000
activity rate=
Total Activity Cost / Total Cost Driver
supply chain
a network of organizations and facilities that transforms raw materials into products delivered to customers
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours? a) $280 b) $1,260 c) $56 d) $252
a) $280
The formula to apply overhead to products is ______. a) activity rate times activity b) total overhead divided by total activity c) direct labor hours times the direct labor hourly rate d) expected activity divided by activity rate
a) activity rate times activity
The first step in implementing an ABC system is to identify the organization's major ______________
activities
A technique that attempts to assign overhead costs to products based on the actions they require is called ________________ _____________________ ______________
activity-based costing
Total Quality Management (TQM)
aims to improve product quality reducing & eliminating errors, streamlining activities & improving production process
activity based costing
alt way to assign indirect costs to products
Value Engineering (VE)
analyzing the functionality of the product to determine which functions +value find how to add those functions while meeting target cost
activity based costing (ABC)
assigning indirect costs to products/services based on the activities they require
Indirect costs can be assigned to products or services using ______. a) target costing b) the activity rate method c) the activity proportion method d) activity-based management e) total quality management
b & c
Non-volume-based cost drivers ______. a) are related to the number of units produced or customers served b) allow more indirect costs to be allocated to products c) are used in traditional costing systems d) are used in ABC systems
b & d
Unit-level activities are ______. a) performed for each group of units b) proportional to the number of units produced c) related to specific products produced d) performed for specific customers
b & d
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour. a) $19.53 b) $78.12 c) $25.00 d) $62.50
b) $78.12 625000/(8000x4)
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. The activity rates are ______. a) $20 per customer call and $25 per development hour b) $8 per customer call and $15 per development hour c) $11.11 per customer call or per development hour
b) $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)
The first step in implementing an ABC system is to ______. a) assign indirect costs based on activity demands b) identify and classify activities c) form activity cost pools d) select cost drivers
b) identify and classify activities
Which of the following are facility-level activities? a) Setting up factory equipment b) Arranging for shipping products to a customer c) Paying factory insurance d) Human resource hiring fairs
c & d
Costs at the batch level depend on the number of ______. a) units produced b) products in a batch c) batches processed d) units sold
c) batches processed
Activity-based costing systems typically include ___________ cost drivers. a) only volume-based b) only labor- and machine-related c) both volume- and non-volume-based d) only non-volume-based
c) both volume- and non-volume-based
Gross margin equals sales price minus ______. a) nonmanufacturing costs only b) both manufacturing and nonmanufacturing costs c) manufacturing costs only
c) manufacturing costs only
To calculate manufacturing overhead cost per unit using ABC, divide the total ______. a) unit-level manufacturing overhead by the number of units sold and exclude batch-, product-, and facility-level costs b) manufacturing overhead cost by the number of units sold c) manufacturing overhead cost by the number of units produced d) unit-level manufacturing overhead by the number of units produced and exclude batch-, product-, and facility-level costs
c) manufacturing overhead cost by the number of units produced
What level of activity is performed each time a single item is produced? a) batch b) facility c) unit
c) unit
Once Stage 2 allocation has been completed it is possible to compute total ______. a) manufacturing overhead cost to be applied to products b) overhead per activity cost pool c) manufacturing overhead per product
c)manufacturing overhead per product
ex of facility/university level activity
classrooms, library, computer lab, university admin, sports teams, campus security
Activities that occur regardless of how many products are produced or how many batches are run or units made are _________________ ______________ activities
company level
benchmarking
compare the cost of performing key activities w/ other firms
activity proportion=
cost driver for each product / total cost driver for all products combines
volume based cost system
cost driver is related to the volume of units produced
on volume based cost driver
cost driver that isnt strictly related to the # of units produced
A group of similar activities that have been combined together is called an activity ____________ __________
cost pool
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product. a) $118,000 to Model XLT and $118,000 to Model TXT b) $59,000 to Model XLT and $59,000 to Model TXT c) $70,800 to Model XLT and $47,200 to Model TXT d) $73,160 to Model XLT and $44,840 to Model TXT
d) $73,160 to Model XLT and $44,840 to Model TXT (620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT)
Which of the following is NOT a volume-based cost driver? a) Direct labor dollars b) Sales revenue c) Direct material costs d) Machine setups
d) Machine setups
Which of the following is NOT part of the manufacturing cost per unit? a) Manufacturing overhead b) Direct materials c) Direct labor d) Sales commission
d) Sales commission
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing. a) target b) volume-based c) traditional d) activity-based
d) activity-based
Indirect costs ______. a) are only related to manufacturing activities b) must be assigned using volume-based cost systems c) are also called activity costs d) are not easily traced to products or services
d) are not easily traced to products or services
The final step in activity-based costing is ______. a) selecting cost drivers for each activity cost pool b) assigning indirect costs to each activity cost pool c) identifying and classifying activities d) assigning indirect costs to products or services
d) assigning indirect costs to products or services
ex of product/service level activity (in a school)
degree program, specific courses
JIT is a _______ system.
demand-pull
ex of prevention cost
design changes to reduce defects, statistical process control, quality training
ex of product level activity
designing new product, creating prototype, safety tests
ex of volume based cost drivers
direct labor hrs, machine hrs, direct material costs, sales rev
ex of internal failure costs
discarded products, cost of repairs, opportunity cost of downtime created by problems
just in time (JIT)
eliminate non value added activities, reduce cost, improve quality
activity based management (ABM)
encompasses all action managers take to improve operations/reduct costs
value added activity
enhances the perceived value of product
to receive the true benefits of ABC, managers must...
go beyond measuring costs to find ways to manage or reduce them
ex of unit/customer level activity (in a school)
grading exams, advising, registering students
Selling price/unit - total manufacturing costs/unit = ________________ ______________/unit.
gross margin
benchmarking is used to...
identify areas a company is ahead/behind in the competition
goal of ABC
identify major activities that place demands on a companys resources assign indirect costs to the products demanded
non value added activity
if eliminated, wouldnt reduce the value of the product
appraisal/inspection costs
incurred to identify defective products during production
prevention costs
incurred to keep quality problem from happening in the 1st place
enterprise resource planning system (ERP)
integrated MIS that cuts across the entire organization
ex of batch/group level activity (in a school)
large lectures
product life cycle
life of the product from: infancy-> design-> development-> product intro-> growth-> maturity-> decline
target costing
managers can use to determine what costs should be for the company to earn an acceptable profit
facility
manufacturing activities & selling/admin costs
To compute the per-unit manufacturing cost, add ____________ _____________to direct materials and direct labor.
manufacturing overhead
external failure costs
occur when a customer buys a defective product
Indirect costs are also referred to as _____________costs.
overhead
Total manufacturing overhead under activity-based costing consists of all ______.
overhead assigned during Stage 2 allocations
The activity proportion method uses _____________ to assign overhead costs to products.
percentages
product level activities
perform for a specific product/type of service
batch level activities
performed for a group/unit all at once
cost of quality report includes:
prevention costs appraisal/inspection costs internal failure costs external failure costs
target costing is a...
proactive approach to cost management
Research and development is a(n) _____________ activity.
product
(JIT) products are __________ manufacturing systems based on customer demand
pulled
(JIT) products are _________ through the manufacturing process & end up in WIP of finished goods until customers purchase
pushed
ex of appraisal/inspection costs
quality control dept, employee testers
ex of batch level activity
reprogramming robotics, performing quality control
adopters of JIT tend to rely on fewer suppliers, but....
require them to adhere to strict quality standards
cost planning
requires managers to think about all costs up front so they can successfully satisfy customers
internal failure costs
results from defects that are caught during inspection
Gross profit margin calculates gross margin as a percentage of ________
sales
ABC can be used in ______ and _______ companies
service & manufacturing
value chain
set of activities to design, develop, produce, market & deliver product to customer
ex of Non-Value-Added Activities
storing units in inventory, moving location of parts, expediting orders
cost of quality report
summarizes the costs incurred to prevent, detect, and correct quality problems
facility level activities
support all levels of a company
target cost=
target price - target profit
T/F: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
true
Installing parts on an automobile is a(n) ___________-level activity.
unit
Direct labor hours and machine hours are both examples of ______________-based cost drivers.
volume
most ABCs include both ____________ based and __________________ based cost drivers
volume & non volume
ex of external failure cost
warranty cost, recalls, product replacement, legal fees, damage to company reputation
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ____________-level activities.
batch
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ________________ activities
batch
ABC works best in service industries ______.
when different customers require different levels of services