ACCT 202 - Chapter 7
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 ______. 4,250 1,700 2,000 2,500
$425,000 ÷ $250 = 1,700
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: $500,000 $125,000 $120,000 $150,000
$500000/25%
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: 40% 20% 10% 25%
20%
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 $ ________________.
400x20 = 8000
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 $_________.
65x120 = $7800
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 $ ___________________.
750000-360000-215000 = 175000
All manufacturing costs are assigned to products in _______________ costing.
Absorption
Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity? Process Traditional Activity-based Both activity-based and traditional
Activity-based
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of ______________ - ______________ _______________ .
Activity-based management
Which of the following is NOT an ABC level of activity? Batch Employee Unit Customer Organization
Employee
True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.
False
Select all that apply What are some of the limitations of activity-based costing systems? Managers and employees may resist the change to ABC. ABC requires substantial resources. The benefits of accuracy always outweigh the costs. ABC procedures produce numbers that do not match traditional costing.
Managers and employees may resist the change to ABC. ABC requires substantial resources. ABC procedures produce numbers that do not match traditional costing.
In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products? Nonmanufacturing Manufacturing Both manufacturing and nonmanufacturing
Manufacturing
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? Unit-level Product-sustaining Organization-sustaining Customer-sustaining Batch-level
Organization-sustaining
Activity-based costing treats organization-sustaining costs as _____________ expenses.
Period
The most common reports prepared using ABC data are the product and customer ______________ reports.
Profitability
Which of the following is NOT an organizational sustaining cost? Security guard wages Plant controller's salary Set-up labor wages Plant administrative supplies
Set-up labor wages
Which of the following is not essential for the successful implementation of an ABC system? Top managers must design the ABC system. Top managers should ensure that ABC data is linked to how employees are evaluated and rewarded. Top managers must support the ABC system. A cross-functional team should be created to design and implement the ABC system.
Top managers must design the ABC system.
Select all that apply Which of the following items are the same under both ABC and traditional costing? Total costs Net operating income Total sales Product margins
Total costs Net operating income Total sales
Which costing method assigns only manufacturing costs to products? Traditional absorption costing Neither traditional absorption nor activity-based costing Activity-based costing Both traditional absorption and activity-based costing
Traditional absorption costing
In activity based costing another term for activity measure is ______. cost pool cost driver volume overhead
cost driver
In activity-based costing, another term for allocation base or activity measure is _____________ _______________ .
cost driver
Select all that apply When managers allocate organization-sustaining and unused capacity costs to products ______. costs will be overstated product margins will be overstated prices will be more accurate than under traditional costing incorrect decisions may be made
costs will be overstated incorrect decisions may be made
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 ______. customer orders customers sales employees items sold
customer orders
Select all that apply The most common management reports using ABC data are ______. customer profitability second-stage allocation product profitability first-stage allocation
customer profitability product profitability
A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity. product-level batch-level customer-level unit-level
customer-level
Select all that apply Activity-based management is focused on ______. eliminating waste pricing decisions reducing defects increasing processing time
eliminating waste reducing defects
Select all that apply. When managers allocate organization-sustaining and unused capacity costs to products ______. prices will be more accurate than under traditional costing product margins will be overstated costs will be overstated incorrect decisions may be made
incorrect decisions will be made costs will be overstated
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to _______________.
increase
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______. direct labor hours machine hours product designs customer orders
machine hours
Select all that apply Customer-level activities include ______. placing purchase orders advertising mailing catalogs sales calls
mailing catalogs sales calls
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer ____________.
margin
Activity-based costing ______ include activities that do not relate to the number of units produced. may may not
may
Under activity-based costing, nonmanufacturing costs ______. are never assigned to products are always treated as period costs are always assigned to products, regardless of cause may be allocated to products based on cause
may be allocated to products based on cause
In traditional costing, ______ costs are assigned to products. both manufacturing and selling and administrative neither manufacturing nor selling and administrative only manufacturing only selling and administrative
only manufacturing
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
Usually, traditional costing ______ high-volume products and ______ low-volume products. undercosts; overcosts undercosts; undercosts overcosts; undercosts overcosts; overcosts
overcosts; undercosts
If ABC is not implemented correctly and organization-sustaining costs are included in product costs, then product costs will be ______ and margins will be ______. overstated; overstated understated; overstated overstated; understated understated; understated
overstated; understated
The basis of benchmarking is comparing ______. manufacturing and nonmanufacturing costs performance within the same industry traditional and ABC systems performance in different industries
performance within the same industry
A _____ ______ is a function of sales and the direct and indirect costs that the product causes. contribution margin gross margin net profit product margin
product margin
In activity-based costing, ______ are different from those calculated using traditional costing. direct labor costs net operating incomes sales product margins
product margin
The profit from a product is also called the ____________ ______________ .
product margin
Costs of unused or idle capacity are assigned to products when using a(n) _____________ costing system.
traditional
When making decisions using ABC data ______. unavoidable fixed costs should be ignored all variable costs should be ignored all assigned costs are relevant
unavoidable fixed costs should be ignored
Power to run production equipment is a(n) ____________-level activity.
unit
Select all that apply. An activity-based costing system ______. only assigns manufacturing costs to products is used for external reporting uses numerous overhead cost pools may exclude some manufacturing costs from product costs
uses numerous overhead cost pools may exclude some manufacturing costs from product costs
Traditional cost systems allocate all manufacturing costs using ______ allocation base(s). volume-related activity-related materials-related overhead-related
volume-related
Activity-based costing data ______. is well suited to decision making can be easily misinterpreted only assigns relevant costs
can be easily misinterpreted
Under activity-based costing, overhead includes ______. only indirect non-manufacturing costs all indirect costs both direct and indirect costs only indirect manufacturing costs
all indirect costs
In activity-based costing, the consumption of overhead resources is caused by ______. direct labor an activity overhead material purchases
an activity
A systematic approach that can identify improvement opportunities is ______. process costing traditional costing activity analysis benchmarking
benchmarking
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 200000/1600 = 125 125x7 = 875
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? $800 $8,000 $5,000 $6,200
($300 × $4) + ($500 × 10) = $6,200
Select all that apply What causes traditional and activity-based costing systems to report different product margins? Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. The traditional cost system assigns period costs to all products that are produced during the period. The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. Traditional cost systems allocate all manufacturing overhead costs to products.
Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base. The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. Traditional cost systems allocate all manufacturing overhead costs to products.
True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
True
True or false: Some manufacturing costs may be excluded from product cost when using ABC.
True
What level of activity is performed each time an item of a product is produced? Customer-level Batch-level Product-level Unit-level
Unit-level
Select all that apply In activity-based costing, what costs are not assigned to products? Unused capacity Organization-sustaining Sales commissions Direct labor
Unused capacity Organization-sustaining
A characteristic essential for successful implementation of ABC is ______. strong support from a cross-functional team a link to how people are evaluated and rewarded top management design and implementation
a link to how people are evaluated and rewarded
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
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______. activity cost pool duration driver transaction driver activity measure
activity cost pool
Total cost of each activity divided by the total activity is the computation of ______. cost pools allocation bases transaction drivers activity rates
activity rates
Overhead includes both manufacturing and nonmanufacturing costs under ______ costing. both activity-based and traditional absorption activity-based traditional absorption neither activity-based or traditional absorption
activity-based
Some manufacturing costs may be excluded from product costs when using ______ costing. traditional absorption neither traditional absorption nor activity-based either traditional absorption or activity-based activity-based
activity-based
Select all that apply 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 it results in a more stable unit product cost assigning costs of unused capacity artificially reduces product cost per unit
products are only assigned the costs of resources they actually use it results in a more stable unit product cost
Select all that apply An activity-based costing system ______. requires substantial resources is costly to maintain produces different numbers than a traditional system provides benefits of improved accuracy that always outweigh the costs
requires substantial resources is costly to maintain produces different numbers than a traditional system
Individual customer _______________ minus individual customer ______________ equals customer margin.
sales; costs
Select all that apply Costs that can be easily traced to individual products include ______. shipping costs sales commission warranty repair costs factory supervisor's salary
shipping costs sales commission warranty repair costs
To reconcile ABC product margin to net income ______. add overhead costs not assigned to products subtract overhead costs not assigned to products do nothing; product margin is equal to net income/loss
subtract overhead costs not assigned to products