Ch. 5 lecture

Question 1

direct costs are

Answer 1

traced

Question 2

indirect costs are

Answer 2

allocated

Question 3

• less costly/ time effort
• less prone to error
• but not very precise/accurate
  (what are theses attributes of)

Answer 3

simplified methods of allocation

Question 4

• more costly/time effort
• more prone to error
• but more precise/accurate
  (what are these attributes of)

Answer 4

complex methods of allocation

Question 5

occurs when the cost measurement system reports a cost for a product that is above the cost of the resources the product consumes

Answer 5

overcosting

Question 6

occurs when teh cost measurement system reports a cost for a product that is below the cost of the resources the product consumes

Answer 6

undercosting

Question 7

if a company undercosts one of its products, it will _______ at least one of its other products

Answer 7

overcost

Question 8

a system that reduces reliance on broad averages for assigning costs and provides better measurement of the resources used by different cost objects

Answer 8

refined costing system

Question 9

3 principal reasons have accelerated the demand for refinements to the costing system

Answer 9

1. increase in product diversity
2. increase in indirect costs with different cost drivers
3. competition in product markets

Question 10

3 main guidelines for refining a costing system

Answer 10

1. direct cost tracing - the more the better
2. indirect cost pools - the more the better
3. cost allocation bases - the more unique the better

Question 11

refines a costing system by identifying individual activities as the fundamental cost objects

Answer 11

activity based costing (ABC)

Question 12

is an event, task, or unit of work with a specific purpose

Answer 12

an activity

Question 13

categorizes various activity cost pools on the basis of the different types of cost drivers/cost allocation bases and different degrees of difficulty

Answer 13

cost hierarchy

Question 14

commonly use a cost hierarchy with four levels to identify cost allocation bases that are cost drivers of the activity cost pools

Answer 14

ABC systems

Question 15

costs (related to the individual units of a product or service)

Answer 15

output unit level costs

Question 16

costs (related to a group of output units

Answer 16

batch level costs

Question 17

costs (related to support a particular product or service without regard to the number of output units or batches)

Answer 17

product (or service) sustaining costs

Question 18

costs (related to costs of activities that cannot be traced to individual products or services)

Answer 18

facility sustaining

Question 19

____ is generally perceived to produce superior costing figures due to the use of multiple drivers across multiple levels

Answer 19

ABC

Question 20

____ is only as good as the drivers selected and their relationship to costs. Poorly chosen drivers will produce inaccurate costs even with ____

Answer 20

ABC

Question 21

using ____ does not guarantee more accurate cost

Answer 21

ABC

Question 22

1. significant amounts of indirect costs are allocated using only one or two cost pools
2. all or most indirect costs are identified as output unit level costs
3. products make diverse demands on resources because of volume, process steps, batch size, or complexity
4. products that a company is well suited to make show small profits whereas products that a company is less suited to make sho large profits
5. operations staff has substantially disagreement with the reported costs of manufacturing and marketing products or services
   (what are these)

Answer 22

ABC may be helpful when these happen