Chapter 4- Activity based costing

Question 1

Activity based costing

Answer 1

allocates overhead to multiple activity cost pools and assigns the activity cost pools to production by means of cost drivers

Question 2

activity cost pool

Answer 2

is a distinct type of activity such as ordering materials or setting up machines

Question 3

Activity

Answer 3

any event, action, or work sequence that incurs cost when producing a product or providing a service

Question 4

Cost driver

Answer 4

any activity that causes resources to be consumed

Question 5

ABC overhead 2 stage process

Answer 5

1. overhead is allocated to activity cost pools, each of which a distinct type or activity.
2. Overhead in the cost pools is assigned to products using cost drivers

Question 6

ABC 4 steps

Answer 6

1. identify and classify the activities involved in the manufacture of specific products and assign overhead to cost pools.
2. identify the cost driver that has a strong correlation to the costs accumulated in each cost pool.
3. compute the activity base overhead for each cost driver
4. allocate overhead costs to products using the overhead rates determined for each cost pool

Question 7

Activity based overhead rate

Answer 7

estimated overhead per activity / expected use of cost drivers per activity

Question 8

Cost assigned

Answer 8

expected use of cost drivers per product X Activity-based overhead rates

Question 9

Activity Rate formula

Answer 9

Activity Cost pool overhead / Total cost driver activity

Question 10

unit level

Answer 10

performed for each unit production, it increases every time a unit is produced.

Question 11

batch level

Answer 11

performed every time a company produces another batch of product (not another unit)

Question 12

product level

Answer 12

performed every time a company produces a new type of product

Question 13

facility level

Answer 13

required to support or sustain an entire production process

Question 14

value added activities

Answer 14

increases the perceived value of a product or service to customers.

Question 15

non value added activities

Answer 15

adds cost, or increases the time spent on a product/ service without increasing its perceived value.

Question 16

When to use ABC

Answer 16

1. product lines differ in volume and manufacturing complexity
2. product lines are numerous and diverse.
3. overhead costs make up a big portion of total costs
4. manufacturing process numbers have changed significantly.

Question 17

ABC objective

Answer 17

identify keys that generate costs and keep track of how many of those activities are completes for each service performed.
-to identity activities, cost pools and cost drivers.