SB 5
An example of a duration driver is the:
time spent preparing invoices
All manufacturing costs are assigned to products in __ costing.
traditional
A systematic approach to identifying the activities that need the most improvement is called __
Benchmarking
Time-driven activity-based costing (TDABC) performs __ to evaluate employee idle time.
Capacity analysis
Which costing system does not assign selling and administrative costs to products when computing product margin?
traditional
Simple counts of the number of times an activity occurs are __ drivers.
transaction
True or false: Some manufacturing costs may be excluded from product cost when using ABC.
true
Which of the following might be included in a customer relations cost pool?
Customer entertainment & Cost of sales calls
When making decisions using ABC data:
unavoidable fixed costs should be ignored
Power to run production equipment would be a(n) __-level activity.
unit
Customer cost analysis using time-driven activity-based costing (TDABC):
uses estimates based on practical capacity assists with measuring customer profitability
Traditional cost systems allocate all manufacturing costs using ______ allocation base(s).
volume-related
Costs that can be easily traced to individual products include:
warranty repair costs; shipping costs; sales commission
T/F: A strength of TDABC is that it can be easily updated by interviewing employees.
False
True or false: In an activity-based costing system, it is best to combine activities that are not highly correlated.
False
True or false: Traditional cost systems tend to overcost standard products and overcost specialty products.
False
In activity-based costing, first-stage allocations are usually based on the results of
Interviews with employees
Overhead includes both manufacturing and nonmanufacturing costs under:
activity-based costing
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _____-_____ _____.
activity-based management
Under activity-based costing, overhead includes:
all indirect costs
An activity measure in activity-based absorption costing is used as a(n) __ base.
allocation
In activity-based costing, the consumption of overhead resources is caused by:
an activity
In activity-based absorption costing an activity measure is:
an allocation base
Activity-based costing is not used for external reporting because:
it is difficult to make changes in the existing accounting system external reports are less detailed than internal reports ABC does not comply with GAAP
Strengths of time-driven activity-based costing (TDABC) include:
it is easy to update it helps estimate the financial impact of aligning capacity with demand employees do not have to self-report idle time
Activity-based costing only charges products for the cost of the capacity used because:
it results in a more stable unit product cost products are only assigned the costs of resources they actually use
External reports are (more/less) detailed than internal reports.
less
The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is
machine hours
In the 19th and 20th centuries, cost systems relied on allocation bases such as:
machine hours labor hours
Customer-level activities include:
mailing catalogs sales calls
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
In traditional costing, ______ costs are assigned to products.
manufacturing
Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.
more
The greater number of activities in an ABC system, the (more/less) costly it is for the company to develop.
more
In ABC, the greater the number of activities, the:
more accurate the costs are likely to be more costly the system will be to design
An example of a transaction driver is the:
number of bills sent out to a customer
Time-driven activity-based costing (TDABC):
overcomes some important limitations of ABC does not assume employees will self-report idle time
Usually, traditional costing ______ high-volume products and ______ low-volume products
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, understated
Comparing ______ is the basis of benchmarking.
performance within the same industry
Activity-based costing treats organization-sustaining costs as __ expenses.
period
Unlike activity-based costing, traditional costing ignores ______ costs when calculating product margins.
period
Activities such as research and development that are not dependent on the number of units or batches are __-level activities
product
Designing and advertising a product are __ -level activities.
product
A product's _________ is a function of sales and the direct and indirect costs that the product causes.
product margin
The most common management reports using ABC data are:
product profitability; customer profitability
The most common reports prepared using ABC data are the product and customer __ reports.
profitability
Activity-based costing uses activity rates to apply overhead costs to products in ________ allocation.
second stage
Customer service employees are a ______ cost.
step-fixed
An ABC system usually _____ a traditional cost system.
supplements
A reason that activity-based costing is not often used for external reporting is
the ABC system may not conform to GAAP
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?
$300 x 4 + ($500 x 10) = $6200
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
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 $
$65 x 120 = $7800
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.
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 $
7,800
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) __ driver.
duration
Which of the following is NOT an ABC level of activity?
employee
True or false: Most companies that use activity based costing replace their traditional accounting system with it.
false
ABC is generally used for ______ reporting.
internal
Identifying the activities that will form the foundation for the system:
involves a great deal of judgment often involves interviewing employees can be time-consuming
Costs assigned and/or traced when computing product margin in a traditional cost system are:
manufacturing overhead; direct material; direct labor
In activity based costing another term for activity measure is:
cost driver
The term __ is also used when referring to an allocation base or activity measure in activity-based costing
cost driver
A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is:
$360,000
The first major step when implementing an ABC system is:
identify the activities
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to .
increase
An activity-based costing system:
is costly to maintain produces different numbers than a traditional system requires substantial resources
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
Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $
$900,000 / 30,000 = 30
When managers allocate organization-sustaining and unused capacity costs to products:
- Costs will be overstated - Incorrect decisions may be made
ABC does not conform to GAAP because it:
- Includes some non manufacturing costs - Excludes some manufacturing costs
What causes traditional and activity-based costing systems to report different product margins?
-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 non manufacturing overhead costs to products on a cause-and-effect basis as appropriate.
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:
1,700
Which costing system assigns nonmanufacturing overhead on a cause-and-effect basis?
ABC
What are some of the limitations of activity-based costing systems?
ABC requires substantial resources. Managers and employees may resist the change to ABC. ABC procedures produce numbers that do not match traditional costing.
the best team to create an ABC system should include employees from:
Marketing
Activity-based costing ____ include activities that do not relate to the number of units produced.
May
Activity-based costing uses more cost __ than traditional costing.
Pools
In activity-based costing, ______ are different from those calculated using traditional costing.
Product Margins
A customer relations cost pool would include the cost of:
Sales calls
True or false: Activity-based costing can be used for process improvement.
True
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
In activity-based costing, what costs are not assigned to products?
Unused capacity Organization-sustaining
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
ABC is not used for external reporting because __ would not be comfortable using allocations based on employee interviews
auditors
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __ level activities.
batch
What type of activities are performed each time a group of units is processed, regardless of how many units are in the group?
batch level
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
Time-driven activity-based costing (TDABC) ______ require extensive interviews with employees.
does not
Customer cost analysis using time-driven activity-based costing (TDABC):
does not require employee interviews helps manage customer mix
Which of the following is not essential for the successful implementation of an ABC system?
Top managers must design the ABC system.
Which of the following items are the same under both ABC and traditional costing?
Total costs Total sales Net operating income
Which costing method assigns only manufacturing costs to products?
Traditional absorption costing
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
A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n)
activity cost pool
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
Costs that are totally unaffected by which products are made during a period are ________ costs.
organization sustaining
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?
organization sustaining
Activity-based costing uses numerous __ cost pools.
overhead
In activity-based costing, first-stage allocation assigns __ costs to activity cost pools.
overhead
Unit-level activities are:
proportional to the number of units produced
What is the benefit of a cross-functional team designing an ABC system?
resistance to change is reduced
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
To reconcile ABC product margin to net income:
subtract overhead costs not assigned to products
Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of:
units produced
Types of costs that might be included in a cost pool based on order size include:
factory supplies; equipment depreciation
In activity-based costing, ______ allocation is the process of assigning overhead costs to activity cost pools.
first stage
Employees may be asked to estimate their time spent dealing with cost pool activities so that
first-stage allocations will be more accurate
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 $
$200,000 / 1600 = $125 $125 x 7 = $875
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 $
400 x $20 = 8000
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 $.
750,000 - 360,000 = 390,000 390,000 - 215,000 = 175,000
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 $
8000
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
Activities that could be combined into one batch-level activity are the number of:
customer orders and shipped orders.
Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer __
margin
Under activity-based costing, nonmanufacturing costs:
may be allocated to products based on cause
