MA 2 Cost assignment and activity-based costing (ABC)

Question 1

Plant-wide (blanket) overhead rate

Answer 1

budgeted overhead rate = total budgeted manufacturing overhead / total budgeted amount of the cost driver (e.g. total labor hours)

Question 2

Traditional costing systems:

Answer 2

• Plant-wide (blanket) overhead rate
• Two-stage allocation process

Question 3

Two-stage allocation process (traditional)

Answer 3

1. Allocate the costs to productions centers
2. Compute the separate overhead rates overhead liked to a department
3. Compute the price

Question 4

Activity-based costing systems

Answer 4

• two stage
• indirect costs are dominant
• indirect costs are non-volume-based
• low information gathering costs
• high levels of competition
• high product diversity

Question 5

Difference between traditional and abc two-stage allocation process

Answer 5

ABC uses :
- a greater numbet of cost centres
- a greater variety of cost drivers (volume based cost drivers, non-volume based cost drivers)
- separate activity cost driver rates for each support activity

Question 6

What are the steps of abc

Answer 6

1. Identify the major activities that take place in the organization
2. Assign costs to cost pools/cost centers for each major activity
3. Determine the cost driver for each major activity
4. Assign the cost of activities to the product according to a product’s demand for these activities