CH 4-5

Question 1

What is cost​ smoothing? describe the consequences it can have on costs.

Answer 1

describes a costing approach that uses 1 average cost allocation rate for assigning the cost of resources uniformly to cost objects.

Question 2

What are the possible consequences of using cost smoothing to calculate unit​ costs?

Answer 2

ignoring the variation in the consumption of resources by different cost​ objects, cost smoothing can lead to inaccurate and misleading cost data.

Question 3

Why should managers worry about product overcosting or​ undercosting?

Answer 3

Overcosting may result in competitors entering a market and taking market share for products that a company mistakenly believes are​ low-margin or unprofitable. Undercosting may result in companies selling products on which they are in fact losing​ money, when they mistakenly believe them to be profitable.

Question 4

Determine the formula needed to calculate the total cost per professional for each client when CG allocates support costs at 28​% of direct professional costs.

Answer 4

Cost per professional​ = Direct professional labour​ + (Direct professional labour​ × Support allocation​ rate)

Question 5

Costing system refinement

Answer 5

making changes to a simple costing system that reduces the use of broad averages for assigning the cost of resources to cost objects + provides better measurement of the costs of overhead resources used by different cost objects.

Question 6

The 3 guidelines for refinement​ include:

Answer 6

1.Classify as many of the total costs as direct costs as is economically feasible.
2. Expand the number of indirect cost pools until each of these pools is more homogenous.
3.Use the​ cause-and-effect criterion, when​ possible, to identify the​ cost-allocation base for each​ indirect-cost pool.

Question 7

What is an​ activity-based approach to refining a cost assignment​ system?

Answer 7

activity-based approach refines a costing system by focusing on individual activities as the fundamental cost objects. using the cost of these activities as the basis for assigning costs to other cost objects such as products or services.

Question 8

Describe four levels of a cost hierarchy.

Answer 8

1.Output​ unit-level costs
2.​Batch-level costs
​3.Product-sustaining costs or​ service-sustaining costs
4. ​Facility-sustaining costs

Question 9

terms

Answer 9

One common
refinement
to a traditional or
peanut butter
​-costing system is called​ a(n)
activity-based-costing (ABC) system.

Question 10

The single manufacturing overhead cost pool is separated into different
____ distinguished from one another by the measure of benefits​ provided, or the _____

Answer 10

The single manufacturing overhead cost pool is separated into different
activity-cost pools​, distinguished from one another by the measure of benefits​ provided, or the _activity-cost driver.

Question 11

Benefits provided unequally to distinct types of outputs provide value added to customers for which customers are willing to pay. This is the basic concept that guides the approach to cost reduction and control called ____

Answer 11

activity-based management​ (ABM)

Question 12

The management team identifies and eliminates ___and its costs and reorganizes the ___ to minimize costs.

Answer 12

The management team identifies and eliminates non-value-added activity and its costs and reorganizes the __value-added activity_ to minimize costs.