Chapter 12

Question 1

Activity based costing

Answer 1

a method of estimating the costs of a service or product by measuring the costs of the activities it takes to produce that service or product; form of splitting overhead costs into different overhead activities (allocates expenses more fairly)

Question 2

Direct costs

Answer 2

costs that an organization can trace to a particular cost object

Question 3

Indirect costs

Answer 3

Costs that cannot be directly traced to a particular cost object. Ex: billing, rent, utilities, IT, overhead. These costs are allocated to cost objects according to an accepted methodology.

Question 4

Cost drivers

Answer 4

something that causes a change in the cost of an activity

Question 5

Cost to Charge Ratio (direct method costing)

Answer 5

An assumed relationship of cost to charges usually determined by industry norms; assumes costs are a certain percentage of charges (common use by docs/dentists)
Adv: simplicity
Disadv: typical of industry may not apply to whole organization, may be inaccurate

Question 6

Step down method costing

Answer 6

A cost-finding method based on allocating costs that are not directly paid for (indirect) to products or services to which payment is attached (direct)