Activity-Based Costing and Process Management

Question 1

When can activity-based costing be used?

Answer 1

With job order and process costing systems; standard costing and variance analysis, and service businesses as well as manufacturers

Question 2

What does process management do that activity-based costing (ABC) alone does not do?

Answer 2

Increase manager understanding of the cause-and-effect relationships involved between processes and the resources they consume, and promote the elimination of waste

Question 3

What is usually the main reason for outsourcing?

Answer 3

Outsourcing is often used to lower cost and increase quality by utilizing a vendor’s specialization

Question 4

Describe the difference between off-shoring and outsourcing.

Answer 4

Outsourcing is always outside of the company (but may or may not be outside the country).
Off-shoring is always outside of the country (but may or may not be outside the company).

Question 5

Compared to traditional costing, how does ABC treat high-volume simple products compared to lower-volume complex products?

Answer 5

With ABC, costs tend to shift away from high-volume, simple products to lower-volume, complex products.

Question 6

How is Business Process Reengineering (BPR) different from incrementally reducing non-value activities?

Answer 6

BPR often involves an extreme transformation by analyzing and making sweeping improvements to an entire process.

Question 7

Define “shared services”.

Answer 7

An arrangement where one part of an organization provides an essential business process where previously it has been provided by multiple parts of that same organization.