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Principles of Accounting - Managerial > Chapter 7 - Activity-Based Costing > Flashcards

Chapter 7 - Activity-Based Costing Flashcards

1
Q

What is a costing method designed to provide managers with cost information for strategic and other decisions that potentially affect capacity?

A

Activity based costing

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2
Q

Fill in the Blank:

ABC was ordinarily used as a ________ to the company’s usual costing system

A

Supplement

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3
Q

True or False:

Some manufacturing costs may be excluded from product costs

A

True

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4
Q

What type of costs does ABC exclude from product costs?

A

Organization-sustaining costs and idle capacity costs

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5
Q

True or False

In ABC product costing nonmanufacturing and manufacturing costs can be assigned to products

A

True

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6
Q

True or False

In ABC product costing only manufacturing costs can be assigned to products

A

False

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7
Q

True or False:

In tradition product costing only manufacturing costs can be assigned to products

A

True

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8
Q

Fill in the Blank:

ABC only assigns nonmanufacturing and manufacturing costs to products on a ___________ basis.

A

Cause-and-effect basis

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9
Q

How does ABC differ from traditional cost accounting?

A

The ABC cost system uses numerous overhead cost pool that have their own unique measure of activity, while the traditional cost system usually just uses direct labor hours and machine hours

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10
Q

Fill in the Blank:

Recently direct labor and overhead costs have been moving in _______ directions

A

Opposite directions

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11
Q

What is an event that causes the consumption of overhead resources?

A

Activity

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12
Q

What is a “cost bucket” in which costs related to a single activity measure are accumulated?

A

Activity Cost Pool

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13
Q

What is an allocation base in an activity based costing system?

A

A activity measure

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14
Q

What is an activity measure usually referred to as?

A

A cost driver

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15
Q

What are 2 common types of activity measures?

A
  1. Transaction driver

2. Duration driver

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16
Q

What is a simple count of the number of times an activity occurs?

A

A transaction driver

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17
Q

What is a measure of the amount of time needed for an activity?

A

A duration driver

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18
Q

What are the traditional cost systems exclusive allocation bases driven by?

A

The volume of production

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19
Q

How many activity levels does ABC have?

A

5 levels

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20
Q

List ABC’s 5 activity levels

A
  1. Unit-Level Activity
  2. Batch-Level Activity
  3. Product-Level Activity
  4. Organization-Sustaining Activity
  5. Customer-Level Activity
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21
Q

What are 3 characteristics of a successful ABC implementation?

A
  1. Strong top management support
  2. Linked to how people are evaluated and rewarded
  3. Cross-functional teams should be created
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22
Q

Which activity cost pool assigns all costs of resources that are consumed by taking and processing customer orders?

A

Customer Orders

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23
Q

Which activity cost pool assigns all costs of resources consumed by customer requested design changes?

A

Design Changes

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24
Q

Which activity cost pool assigns all costs of resources consumed as a consequence of the number of units produced?

A

Order Size

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25
Q

Which activity cost pool assigns all costs associated with maintaining relations with customers?

A

Customer Relations

26
Q

Which activity cost pool assigns all organization-sustaining costs and unused capacity costs?

A

Other

27
Q

What are the 2 formulas to find activity rate?

A
  1. Activity cost pool / activity measure

2. Total cost / total activity

28
Q

What is the formula to find assigned overhead to products?

A

Activity rate x activity

29
Q

What is the formula to find the product margin?

A

Sales - total cost

30
Q

What is the layout of the management report?

A 
Sales
Total Cost
Product Margin
Less costs not assigned to products:
Customer Relations
Other
Total
Net Operating Loss
31
Q

What is the formula to find the customer margin?

A

Sales - total cost

32
Q

What is the formula to find the product margin’s plantwide PDOR?

A

TMO/Total machine hours

33
Q

What are the 2 steps in computing product margins using the traditional costing system?

A
  1. Compute the plantwide PDOR

2. Calculate OH applied

34
Q

Fill in the Blank: higher/lower

The traditional cost system overcosts when it reports a product margin that is _____ than the ABC’s product margin

A

Lower

35
Q

Fill in the Blank: higher/lower

The traditional cost system undercosts when it reports a product margin that is _____ than the ABC’s product margin

A

Higher

36
Q

What is used in conjunction with ABC to identify areas that would benefit from process improvements by focusing on activities to eliminate waste, decrease processing time, and reduce defects?

A

Activity-based management

37
Q

What can provide valuable clues concerning where there is waste and the opportunity for improvement?

A

ABC activity rates

38
Q

What can be used to compare activity cost information with standards of performance achieved by other organizations?

A

Benchmarking

39
Q

True or False:

Most companies do not use ABC for external reporting

A

True

40
Q

Is it difficult to make changes to a company’s ABC accounting system?

A

Yes

41
Q

Does ABC conform to GAAP?

A

No

42
Q

Is internal or external reporting less detailed?

A

External reporting is less detailed

43
Q

What does customer service go under on the customer margin ABC analysis?

A

Customer service overhead

44
Q

What is the formula to find the customer margin report’s sales?

A

SP PU x # of units

45
Q

What is the formula to find the customer margin report’s direct material cost?

A

DMC PU x # of units

46
Q

What is the formula to find the customer margin report’s direct labor cost?

A

DLC PU X # of units

47
Q

What is the formula to find the customer margin report’s supporting direct labor cost?

A

SDL AR x required DLH x # of units

48
Q

What is the formula to find the customer margin report’s batch processing cost?

A

BP AR x # of batches

49
Q

What is the formula to find the customer margin report’s order processing cost?

A

OP AR x # of orders

50
Q

What is the formula to find the customer margin report’s customer service overhead cost?

A

CS AR x # of customers

51
Q

True or False:

Direct Material and Direct Labor should go under costs in the customer margin ABC analysis

A

True

52
Q

What is the formula to find overhead according to the ABC system?

A

Total Cost / Annual Production

53
Q

What is the formula to find unit product measure’s total cost according to the ABC system?

A

(Company 1 AR x 1st activity measure) + (Company 1 AR x 2nd activity measure)

54
Q

What is the activity cost pool also known as?

A

Total cost

55
Q

What is the activity measure also known as?

A

Total activity

56
Q

Is Other included in the total cost calculation?

A

Yes

57
Q

Is Other included in the activity rate calculation?

A

No

58
Q

List the 5 steps for implementing ABC

A
  1. Define activities, activity cost pools, and activity measures
  2. Assign overhead costs to activity cost pools
  3. Calculate activity rates
  4. Assign overhead to products
  5. Prepare management reports
59
Q

What are the 2 activity cost pool that are not assigned to products?

A
  1. Customer relations

2. Other

60
Q

What 6 activity cost pools make up the product margin’s cost?

A

DM, DL, shipping, customer orders, design changes, order size

61
Q

What is the activity rate of the Other activity cost pool?

A

$0

Principles of Accounting - Managerial (11 decks)

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