Chapter 9 Smartbook (Cost)

Given budgeted overhead cost of $250,000 and budgeted machine-hours of 125,000, the overhead rate is $ per machine hour

2

If budgeted overhead cost is $250,000 and budgeted direct labor cost is $400,000 then the overhead rate equals:

62.5% of direct labor cost

Which of the following statements is false? A. Finding a cost driver that is causally related to the cost being allocated is easier with plantwide allocation. B. In ABC, the selection of a cost driver is often easy because a measure of the activity volume can be used. C. The best cost driver is the one that is causally related to the cost being allocated.

A. Finding a cost driver that is causally related to the cost being allocated is easier with plantwide allocation.

Which of the following is NOT a typical allocation base companies use when calculating a single plantwide rate? A. purchase orders B. machine hours C. direct labor costs D. direct labor hours

A. purchase orders

Costs are assigned to individual cost objects (products or services) using appropriate cost allocation

bases or drivers

When choosing to use more complex allocation methods, the incremental costs of additional information must be justified by an increase in _____________________ from the improved decisions.

benefits

In an ABC two-stage cost system, each activity has an associated

cost activity

The best ___________ is one that is causally related to the cost being allocated

cost driver

The cause of an activity cost is called a(n)

cost driver

The process that begins by attempting to increase price to meet reported product costs, losing market, reporting higher costs, and so on until out of business is the

death spiral

The process where a company attempts to recover costs by increasing price for a product with decreasing demand describes the

death spiral

When a company uses one allocation base, it gives the appearance that when a company drops a segment, all overhead costs will (increase/decrease)

decrease

If multiple products use the manufacturing facilities in many different ways, the ______ allocation method is the best choice to allocate overhead

departmental

To assign overhead costs to a product, multiply the cost driver rates by the number of units of the cost ______.

driver in each product

Identifying the activities is the ______ step in developing an ABC system.

first

The first step in activity-based costing is ______.

identify the activities

The second step in activity-based costing is Blank______.

identify the cost drivers

Examples of batch related activities include ______.

material handling setup costs

The basic approach in product costing is to allocate costs in the cost pools to individual cost ______.

objects Reason: Costs are assigned to a cost object using cost drivers such as direct labor costs and machine hours.

The plantwide allocation method uses ______.

one cost pool for the entire plant one rate

When one cost pool is used to allocate overhead costs to products for all departments the _____ allocation method is in use

plantwide

Testing for environmental compliance and design and specification are examples of

product-related costs

ABC ______.

requires teamwork between accounting and nonaccounting employees provides more detailed information than plantwide and two-stage allocation helps managers identify cost drivers that were previously unknown

Identifying the cost drivers is the ______ step in developing an ABC system.

second

The choice of whether to use a plantwide rate or departmental rates depends on ______.

the costs and benefits of information provided by each system the products and the production process

When a company uses only one rate to allocate overhead costs, the accounting system treats all overhead as if the costs were ______.

variable

Activity-based costing assigns costs to products by multiplying the cost driver rate by the _______ of cost driver units consumed by the product.

volume

Activity-based costing system recognizes that overhead is not necessarily related to the __________________ of output.

volume

All actual overhead costs are recorded in ______.

Manufacturing Overhead Control

True or false: When using activity-based costing, the predetermined overhead rate applies to any type of indirect cost.

True Reason: The formula is the same whether manufacturing overhead, administrative, distribution, selling, or any other indirect costs.

Any discrete task that an organization undertakes to make or deliver a product or service is called a(n)

activity

The final step in the activity-based costing system is to assign the ____________ _____________ to products.

activity costs

The two-stage product costing method that assigns costs first to activities and then to the products based on each product's use of activities is called ______.

activity-based costing