Ch.7 ACCT201
Activity cost pool
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system.
In the 1st stage allocation of overhead costs, products, customer orders, and customers are examples of _____. A. Activity levels B. Activity rates C. Cost objects D. Cost pools
C. Cost objects
External reports are (more/less) detailed than internal reports.
less
Unit-level activities
performed each time a unit is produced. it is proportional to the number of units produced. -ex. providing power to run processing equipment because power tends to be consumed in proportion to the number of units produced.
Usually, traditional costing _____ high volume products and _____ low volume products. undercosts; undercosts undercosts; overcosts overcosts; overcosts overcosts; undercosts
undercosts; overcoats
What are the 2 types of manufacturing overhead costs that ABC does NOT assign to products?
Organization-sustaining Unused capacity costs
Designing and advertising a product are _____ level activities.
Product
Customer-level activities
Relate to specific customers and include activities such as sales calls, catalog mailings, general technical support not tied to any specific product.
Activity-based costing uses activity rates to apply overhead costs to products in ______ allocation. A. 4th stage B. 3rd stage C. 1st stage D. 2nd stage
Second stage
Activity-based costing
Supports internal decision making by assigning costs to cost objects based on the activities performed by the cost objects.
Activity Rate equation
Total Cost x Total Activity
Which system relies exclusively on allocation bases that are driven by the volume of the product?
Traditional cost system
True or False? An activity rate calculates the average figures.
True
How do you compute activity rates?
Total cost for activity / Total activity
In (traditional absorption costing system/absorption costing system), the cost of unused capacity is assigned to products.
Traditional
True or False? Traditional absorption costing assigns organization-sustaining costs and unused capacity costs to products.
True
In activity-based costing, each cost pool accumulates costs that relate to a single _______ measure in the ABC system.
activity
Activity measure
an allocation base in an ABC system. AKA "cost driver"
activity
any event that causes consumption of overhead resources
Organization-sustaining activities
-Carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. -Ex. heating the factory, cleaning executives office, providing computer network
Product-level activities
-Relate to specific products and must be carried out regardless of how many batches are run or units are produced or sold
In ABC, the greater the number of activities, the: A. more costly the system will be to design B. easier the system will be to implement and maintain C. more accurate the costs are likely to be
A & C- B is not true because more activities make a system more complex.
When managers allocate organization-sustaining and unused capacity costs to products: (check all that apply) A. product margins will be overstated B. Prices will be more accurate than under traditional costing C. costs will be overstated D. incorrect decisions will be made
C. Costs will be overstated D. incorrect decisions will be made Product margins will be UNDERstated
An activity cost pool accumulates cost for ____ activity cost measure. A. Exactly one B. Less than one C. Multiple
Exactly one
Activity
any event that causes the consumption of overhead resources
Transaction driver
simple counts of the # of times an activity occurs
Duration drivers
the amount of time required to perform an activity. more accurate measure of resource consumption
Under ABC, product cost calculations include all indirect costs IF...
they are caused by products.
Under ABC, product cost calculations include all direct costs IF....
they can be traced to products.
Batch-level activities
-Performed each time a batch is handled or processed no matter how many units are in the batch. -Incurred once for each batch (or customer order) -Costs depends on the number of batches processed -Ex. Placing purchase orders, arranging for shipments to customers, setting up machine for batch processing
Comparing _____ is the basis of benchmarking. A. performance within the same industry B. traditional and ABC systems C. manufacturing and nonmanufacturing costs D. performance in different industries
A. performance within the same industry
Overhead Cost of product equation
Activity Rate x Activity
In (traditional absorption costing system/absorption costing system), products are charged only for the cost of capacity they use- not for the cost of the capacity they don't use.
Activity-based costing
What causes traditional and activity-based costing systems to report different product margins? (check all that apply) A. the traditional cost system assigns period costs to all products that are produced during the period. B. The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. C. Traditional cost systems allocate all manufacturing overhead costs to products. D. Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-realated allocation base.
B, C, and D
Traditional absorption costing systems used for internal or external purposes?
External financial reporting purposes
True or False? In the "other" category of costs, an activity rate is computed.
False. The "other" cost pool consists of organization-sustaining costs and unused capacity costs that are not allocated to products and customers.
Absorption costing systems used for internal or external purposes?
Internal decision making purposes
Power to run production equipment would be a(n) ____ level activity.
unit