Managerial Accounting Chapter 7
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 $
175,000 or 175000
f the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $
7800
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
Which of the following is NOT an ABC level of activity?
Employee
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
Which of the following help companies channel their resources into the most profitable growth opportunities?
Product and customer profitability reports
Which of the following is NOT an organizational sustaining cost?
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.
In activity based costing another term for activity measure is ______.
cost driver
In activity-based costing, another term for allocation base or activity measure is
cost driver
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
A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.
customer-level
In the 19th and 20th centuries ______.
direct labor hours was a satisfactory overhead allocation base
The amount of time required to perform an activity is measured by a(n)
duration
Individual product costs calculated using ABC are not listed on ______ reports.
external
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to__________
increase
ABC is generally used for ______ reporting.
internal
In activity-based costing, first-stage allocations are usually based on the results of ______.
interviews with employees
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer
margin or profitability
Activity-based costing ______ include activities that do not relate to the number of units produced.
may
An example of a transaction driver is the ______.
number of bills sent out to a customer
If some products are overcosted and some are undercosted the errors will ______.
offset each other in cost of goods sold and inventory valuations
The basis of benchmarking is comparing ______.
performance within the same industry
Activity-based costing uses more cost than traditional costing.
pools
The final step in implementing ABC is ______.
prepare management reports
A product's _________ is a function of sales and the direct and indirect costs that the product causes.
product margin
The profit from a product is also called the
product margin
All manufacturing costs are assigned to products in ___________costing.
traditional
True or false: As the number of activities increases, the cost to implement an ABC system also increases.
true
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
Power to run production equipment is a(n) -level activity.
unit
Power to run production equipment is a(n) ________-level activity
unit
What level of activity is performed each time an item of a product is produced?
unit-level
Overhead includes both manufacturing and nonmanufacturing costs under ______ costing.
activity-based
Some manufacturing costs may be excluded from product costs when using ______ costing.
activity-based
In the 19th and 20th centuries, cost systems relied on allocation bases such as ______.
labor hours and machine hours
Under activity-based costing, nonmanufacturing costs ______.
may be allocated to products based on cause
Costs of unused or idle capacity are assigned to products when using a(n)
traditional
Simple counts of the number of times an activity occurs are __________drivers.
transaction
True or false: Activity-based costing can be used for process improvement.
true
Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of ______.
units produced
Place the steps for implementing ABC in order.
1. define activities, activity cost pools, and activity measure. 2. assign overhead costs to activity cost pools. 3. calculate activity rate 4. assign overhead costs to cost objects 5. prepare management reports.
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?
6200
What are some of the limitations of activity-based costing systems?
ABC requires substantial resources. ABC procedures produce numbers that do not match traditional costing. Managers and employees may resist the change to ABC.
Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?
Activity-based
ABC is not used for external reporting because ____ would not be comfortable using allocations based on employee interviews.
Auditors
A systematic approach that can identify improvement opportunities is ______.
benchmarking
Activity-based costing data ______.
can be easily misinterpreted
In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n) ______ basis.
cause-and-effect
In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.
first
Employees may be asked to estimate their time spent dealing with cost pool activities so that ______.
first-stage allocations will be more accurate
Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.
more
In traditional costing, ______ costs are assigned to products.
only manufacturing
In activity-based costing, first-stage allocation assigns costs to activity cost pools.
overhead
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; understated
Activity-based costing treats organization-sustaining costs as expenses.
period
A reason that activity-based costing is not often used for external reporting is ______.
the ABC system may not conform to GAAP
An example of a duration driver is the ______.
time spent preparing invoices
Simple counts of the number of times an activity occurs are ______________ drivers.
time spent preparing invoices
True or false: When a team is created to design and implement an ABC system, it should include members that represent many different functional areas.
true
When making decisions using ABC data ______.
unavoidable fixed costs should be ignored
Activity based costing provides managers with information that affects ______.
variable
Organization-sustaining activities include ______.
-setting up a computer network -heating a factory -preparing annual reports
Costs that can be easily traced to individual products include ______.
-shipping costs -sales commission -warranty repair costs
Under activity-based costing, overhead includes ______.
all indirect costs
In activity-based costing, the consumption of overhead resources is caused by ______.
an activity
Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews?
auditors
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. Using activity-based costing, calculate the appropriate activity rate(s).
$8 per customer call and $15 per development hour
Customer-level activities include ______.
-sales calls -mailing catalogs
A characteristic essential for successful implementation of ABC is ______.
a link to how people are evaluated and rewarded
The first major step in implementing ABC is to identify the that will form the foundation for the system
activities
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
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of
activity based management
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______.
activity cost pool
The most common reports prepared using ABC data are the product and customer reports
profitability
Activity-based management is focused on ______.
reducing defects eliminating waste
Individual customer minus individual customer equals customer margin
sales, costs
Activity rates are used to apply overhead costs to products and customers in the -stage allocation
second
Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.
second
To reconcile ABC product margin to net income ______.
subtract overhead costs not assigned to products
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:
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 $
8,000 or 8000
When managers allocate organization-sustaining and unused capacity costs to products ______.
-incorrect decisions may be made -costs will be overstated
Identifying the activities that will form the foundation for the system ______.
-involves a great deal of judgment -can be time-consuming -often involves interviewing employees
In ABC, the greater the number of activities, the ______.
-more costly the system will be to design -more accurate the costs are likely to be
An activity-based costing system ______.
-requires substantial resources -produces different numbers than a traditional system -is costly to maintain
What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages?
$500,000
In activity-based costing, what costs are not assigned to products?
-Unused capacity -Organization-sustaining
Activities that could be combined into one batch-level activity are the number of ______.
-customer orders received -shipped orders
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______.
Product and customer profitability reports
What is the benefit of a cross-functional team designing an ABC system?
Resistance to change is reduced.
Which costing method assigns only manufacturing costs to products?
Traditional absorption costing
