Chapter 7 Activity-Based Costing

Question 0

How to compute activity rates?

Answer 0

Total cost divided by total activity

= activity rate

Question 1

What is first stage allocation?

Answer 1

The percentages multiplied by the total costs

= amount of allocation to the cost pool

Question 2

Assigning costs to products, second stage allocation?

Answer 2

Activity rate x products total activity

= ABC cost allocation for product

Question 3

How to find the product margin?

Answer 3

Sales (given in problem) - total cost (all product costs added together) = product margin

Question 4

How to find customer margin?

Answer 4

Sales - direct costs = customer margin

Question 5

Three differences between traditional and ABC?

Answer 5

1. In ABC non-manufacturing and manufacturing costs may be assigned to products, but only on cause and effect basis
2. Some manufacturing costs may be excluded from product costs. Don’t always use all manufacturing costs
3. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity

Question 6

What is activity-based management?

Answer 6

Used with ABC to identify areas that could benefit from process improvements.

Question 7

What is benchmarking?

Answer 7

Comparing activity cost information with standards of performance achieved by other organizations

Question 8

Does ABC conform to GAAP?

Answer 8

No

Question 9

Limitations of ABC (5)

Answer 9

Substantial resources to implement/maintain
Resistance to unfamiliar numbers/reports
Desire to fully allocate the costs
Potential misinterpretation of unfamiliar #s
Does not conform to GAAP

Question 10

What are the 5 levels of activity used in ABC?

Answer 10

1. Unit-level: each time a unit is produced
2. Batch-level: each time a batch is handled
3. Product-level: relate to specific products
4. Customer-level: relate to specific customers
5. Organization-sustaining: carried out regardless of anything else