Smart Book Chpater 4

Departmental overhead rates correctly assign overhead costs in situations where a company has a range of products and complex overhead costs.

False

When two variables move together, they are said to be negatively correlated.

False

A cost bucket in which costs related to a particular activity measure are accumulated is called a(n)

activity cost pool

How much of an activity is carried out is expressed by a(n) ______, which is used as the allocation base for applying overhead costs to products and services.

activity measure

The activity rate is computed by dividing the ______ by the ______.

total cost in the activity cost pool; activity level in the activity cost pool

Processing purchase orders is considered to be a(n) ______-level activity.

batch

A systematic approach to identifying the activities that need the most improvement is called

benchmarking

____ -level activities consist of tasks that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch.

batch

Which of the following statements are true?

Technology has made more complex costing systems less expensive to develop and maintain. On an economywide basis, direct labor and overhead costs have been moving in opposite directions for a long time.

Activity-based costing relies on a number of critical assumptions which could distort information for making decisions.

True

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 * 120 = $7800

___ - ____ management involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

- activity -based

An activity that must be done for each item produced is a(n) __-__ activity

- unit - level

A predetermined overhead rate in an activity-based costing system is called a(n)

-activity -rate

Activity-based management is focused on ______.

-eliminating waste - reducing defects

Activity-based costing improves the accuracy of product costs by ______.

-using a variety of activity measures to assign overhead costs to products -using cost pools that are more homogeneous than departmental cost pools -increasing the number of cost pools used to accumulate overhead cost

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $___ per machine hour.

30

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity rate

When a company has extensive product diversity and complex overhead, it is best to assign overhead using ______.

activity-based costing

An activity measure in activity-based costing is used as a(n) base for applying overhead costs to products and services.

allocation

Benefits of activity-based costing include ______.

helping managers understand the nature of overhead costs helping target areas for process improvement more accurate product costs

Using volume-based cost drivers to assign overhead when ABC is appropriate ______.

may lead to overpriced or underpriced goods

The cost of implementing and maintaining an activity-based costing system ______ the benefits received.

may outweigh

A significant limitation of the ABC model is that the product costs computed will most likely be ______.

overstated for purposes of decision making

The basis of benchmarking is comparing ______.

performance within the same industry

Designing and advertising a good are both ______-level activities.

product

When using activity rates, overhead is assigned the same way as when using plantwide or departmental rates.

true

___-____ activities relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured.

-product -level

Traditional cost systems tend to undercost standard products and overcost specialty products.

False

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is ______.

unimportant

An activity that must be done for each item produced is a(n) __ level activity.

unit

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 $

$20 * 400 = 8000

A company incurred the following: Total manufacturing costs of $500,000, total production department costs of $300,000, and total production order costs of $275,000. It used a total of 50,000 direct labour hours and 100,000 machine hours, and 2,750 production orders were placed. Use activity-based costing to calculate the activity rate for production orders.

$275,000 ÷ 2,750 = $100 per production order

Using direct-labor hours or another volume based cost driver to assign overhead ______.

-may result in selling products at a loss -ignores other significant causes of overhead -may result in overcharging customers for products

For each unit of a product, the direct material cost is $10, the direct labor cost is $15, and the manufacturing overhead is $16. The total unit product cost using activity-based costing is ______.

Unit product cost = Direct material cost + Direct labor cost + Manufacturing overhead = $10 + $15 + $16 = $41

In ABC, any event that causes consumption of overhead resources is a(n)

activity

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n)

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

Activity-based costing ______.

computes product costs in the same way as traditional costing

Costs that cannot be traced on a cause-and-effect basis to individual products are ___-level costs

facility

Organization-sustaining activities is another term for ___ -level activities.

facility

Activity-cost rates may either be computed per product or per activity.

false

Usually, traditional costing Blank______ high-volume products and Blank______ low-volume products.

overcosts; undercosts

Implementing activity-based costing ______.

requires taking employees away from other tasks should be done by a cross-functional team requires substantial resources

The ABC model is useful when an organization is making decisions about how ______.

some selling and administrative expenses should be assigned to products

A plantwide overhead rate based on direct labor hours is ______ appropriate.

sometimes

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities

batch

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $_ per machine hour

$900,000/30,000 = 30

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 Blank______.

($900,000 ÷ 30,000) × 12,000 = $360,000