ABC Analysis

Question 1

What is Activity-Based Costing (ABC)?

Answer 1

A costing method that assigns overhead to products based on activities and their cost drivers ## Footnote It improves accuracy by linking costs to the true causes of overhead.

Question 2

What are the four activity cost levels in ABC?

Answer 2

Unit-level, Batch-level, Product-level, Facility-level ## Footnote Each level reflects a different type of activity consumption.

Question 3

What is a unit-level activity?

Answer 3

Activities performed for each unit produced, like drilling or cutting ## Footnote Costs vary with the number of units made.

Question 4

What is a batch-level activity?

Answer 4

Activities performed for a group of units, like setups or inspections ## Footnote These costs are incurred per batch, not per unit.

Question 5

What is a product-level activity?

Answer 5

Activities that support an entire product line, like product design ## Footnote Incurred regardless of number of units or batches.

Question 6

What is a facility-level activity?

Answer 6

Activities supporting the entire production process, like plant management ## Footnote These costs are independent of product volume.

Question 7

Which cost driver is most appropriate for engineering design?

Answer 7

Engineering hours ## Footnote Reflects technical design effort required per product.

Question 8

Which cost driver is best for ordering and receiving?

Answer 8

Number of orders ## Footnote Each order triggers procurement and handling activities.

Question 9

What type of activity is ‘Machine setup’?

Answer 9

Batch-level activity ## Footnote It supports multiple units produced in a batch.

Question 10

What is the classification of ‘Storing materials’ under VA/NVA?

Answer 10

Non-Value-Adding (NVA) ## Footnote It does not directly contribute to the final product.

Question 11

Which ABC cost pool would use ‘Boxes’ as a cost driver?

Answer 11

Packaging and shipping ## Footnote Box usage reflects shipping volume per product.

Question 12

What is an example of a value-added activity in ABC?

Answer 12

Machining or Engineering Design ## Footnote These activities enhance product functionality.

Question 13

What is an example of a non-value-added activity in ABC?

Answer 13

Inspection or Inventory storage ## Footnote These activities do not enhance customer-perceived value.

Question 14

What is the Manufacturing Cycle Efficiency (MCE) formula?

Answer 14

MCE = Value-Added Time ÷ Total Cycle Time ## Footnote Indicates the proportion of time spent on value-adding activities.

Question 15

How does ABC improve product costing accuracy?

Answer 15

By tracing overhead based on actual activity consumption rather than a single cost driver ## Footnote Reduces over/under-costing in complex product lines.

Question 16

How is overhead assigned in ABC?

Answer 16

Overhead is assigned based on activity cost pools and their respective cost drivers ## Footnote Each pool has a rate applied to the actual activity consumed by a product.

Question 17

What is the formula for overhead applied using ABC?

Answer 17

Overhead = Activity Rate × Actual Activity Usage ## Footnote Activity rate is computed as Budgeted Cost ÷ Budgeted Activity.

Question 18

What is the overhead rate for machine setups if budgeted cost is P240

Answer 18

000 and 200 setups?

Question 19

What is the overhead rate for material handling if cost is P90

Answer 19

000 and 60

Question 20

What is the overhead rate for quality control if cost is P48

Answer 20

000 and 1

Question 21

What is the overhead rate for other overhead if cost is P160

Answer 21

000 and 20

Question 22

How much overhead is assigned to Order No. 715 using ABC if it had 7 setups

Answer 22

11

Question 23

What is the predetermined overhead rate using traditional costing if total OH is P538

Answer 23

000 and 20

Question 24

What is the overhead assigned to Order No. 715 using traditional costing (850 hours)?

Answer 24

P22,865 ## Footnote 850 × P26.90

Question 25

What is the cost per unit of coats using ABC if total cost is P84

Answer 25

720 and 8

Question 26

What is the cost application rate for material handling if cost is P225

Answer 26

000 and 100

Question 27

What is the cost application rate for automated machinery if cost is P840

Answer 27

000 and 39

Question 28

What is the cost application rate for finishing if cost is P170

Answer 28

000 and 34

Question 29

What is the cost application rate for packaging if cost is P170

Answer 29

000 and 1

Question 30

What is the per-unit cost of the Deluxe product under ABC if total cost is P880

Answer 30

000 and 2

Question 31

What is product margin under ABC?

Answer 31

Selling price – Direct materials – Direct labor – ABC-assigned overhead ## Footnote Reflects true profitability after activity-based overhead allocation.

Question 32

How is product margin different under traditional costing?

Answer 32

It may be distorted due to overhead applied using a single cost driver like machine hours ## Footnote ABC provides more accurate cost tracing.

Question 33

What is the product margin of Product X if ABC overhead is P3

Answer 33

668.60 and total cost is P109.03?

Question 34

Why might traditional costing overcost simple products?

Answer 34

Because it spreads overhead evenly, ignoring that simple products use fewer resources ## Footnote ABC avoids this by assigning costs based on actual activity usage.

Question 35

Why might traditional costing undercost complex products?

Answer 35

Because it doesn’t capture the higher activity consumption of complex products ## Footnote ABC reveals the true cost burden of customization or complexity.

Question 36

What is the benefit of ABC in multi-product environments?

Answer 36

It improves cost accuracy by reflecting the unique resource usage of each product ## Footnote Especially useful when products vary in volume or complexity.

Question 37

What is the ABC overhead assigned to Tax services if CPU minutes = 40

Answer 37

000 and legal hours = 200?

Question 38

What is the ABC overhead assigned to Consulting services if CPU minutes = 10

Answer 38

000 and legal hours = 800?

Question 39

What is the traditional overhead assigned to Tax services if total OH is P300

Answer 39

000 and DL cost is P50

Question 40

What is the traditional overhead assigned to Consulting services if DL cost is P100

Answer 40

000 of P150

Question 41

What is the total cost per unit of Product A under traditional costing if OH = P90

Question 42

What is the total cost per unit of Product B under ABC if setup

Answer 42

design

Question 43

What is the key insight from Jing Company’s ABC analysis?

Answer 43

ABC reveals that Product A consumes more setup and design resources per unit than Product B ## Footnote Traditional costing masked this cost asymmetry.

Question 44

What is the cost driver for material insertion in Mikelle Corp’s ABC system?

Answer 44

Number of parts ## Footnote More parts = more insertion effort

Question 45

What is the strategic value of ABC for decision-making?

Answer 45

It supports pricing, product mix, and process improvement decisions by revealing true cost behavior ## Footnote Helps eliminate unprofitable products or streamline costly activities.