Activity Based Costing (1)

Question 1

What does traditional absorpotion costing use?

Answer 1

A single basis for absorbing all overheads into cost units for a particular production department cost centre

Question 2

What will a business choose in traditional absorption costing?

Answer 2

Best reflects the way in which overheads are being incurred

Question 3

What happens in a business where labour is intensive?

Answer 3

Overheads may be absorbed based on number of direct labour hours worked

Question 4

Traditional absorption costing were developed in time when (narrow range)

Answer 4

Most manufacturers produced only a narrow range of products

Question 5

Traditional absorption costing were developed in time when (similar operations)

Answer 5

Products underwent similar operations and consumed similar proportions of overheads

Question 6

Traditional absorption costing were developed in time when (total production costs)

Answer 6

Overhead costs were only a very small fraction of total production costs

Question 7

Modern businesses in terms of costing (dramatic fall)

Answer 7

Have experienced a dramatic fall in the costs of processing information

Question 8

Modern businesses in terms of costing (advanced manufacturing costing)

Answer 8

Overhead costs have become a much larger proportion of total production costs, and direct labour has become much less important

Question 9

What is now difficult to do?

Answer 9

Justify the use of direct labour hours as basis for absorbing overheads to produce “realistic” product costs

Question 10

What are non-volume related support activities?

Answer 10

Activities that support production, but where level of support activity depends on something other than production volume

Question 11

What do non-volume related support activities assist in?

Answer 11

Efficient manufacture a wide range of products are not affected by changes in production volume

Question 12

What causes long0term variance in non-volume related support activities?

Answer 12

According to range and complexity of the products manufacturedm rather than volume of output

Question 13

When the range is wider and the more complex the products?

Answer 13

More support services are required

Question 14

What do traditional absorption costing systems tend to allocate?

Answer 14

Too great a proportion of overheads to high volume products

Too small a proportion of overheads to low volume products

Question 15

Effect of too great a proportion of overheads to high volume products?

Answer 15

Causes little diversity and hence uses fewer support services

Question 16

Effect of too small a proportion of overheads to low volume products?

Answer 16

Causes too much diversity and therefore uses more support services