ABC

Question 1

Activity Based Costing

Answer 1

An approach to the costing and monitoring of activities which involve tracing resource consumption and costing final outputs.

Resources are assigned to activities and activities to cost objects based on consumption estimates. The latter with utilize cost drivers to attach activity costs to outputs.

Question 2

Cost Driver

Answer 2

The factor that influences the level of cost, used to denote the factor which links activity resource consumption to product outputs.

Select one per cost pool that is relevant and easy to measure.

Question 3

Cost Pool

Answer 3

Grouping of costs relating to a particular activity based costing system

There are 4 different categories of an activity or a transaction in which there could be important consuming activities:

Question 4

Hierarchy of activities

Answer 4

Classification of activities by level of organisation

Question 5

Logistical transactions

Answer 5

Concerned with moving materials or people, and tracking the progress of materials or work through the system

Question 6

Balancing transactions

Answer 6

Concerned with ensuring resources required for an operation are available e.g. raw materials

Question 7

Quality transactions

Answer 7

Concerned with ensuring that output or service levels meet quality requirements and customer expectations e.g. inspections

Question 8

Change transactions

Answer 8

Activities requires to respond to change in customer demand design specifications, scheduling changes, changes in delivery methods etc.

Question 9

Transaction drivers

Answer 9

The cost of an acitivity is affected by the number of times a particular action is undertaken e.g. batches of materials.

Question 10

Types of cost pool:

Answer 10

Logistical
Balancing
Quality
Change

Question 11

Types of cost driver:

Answer 11

Transaction
Duration
Intensity

Question 12

Duration drivers

Answer 12

The cost of an activity is affected by the length of time it takes to perform the activity e.g. set up time

Question 13

Intensity drivers

Answer 13

Efforts directed to determining what resources were used in the making of a product e.g. applying an additional weighting to overseas deliveries over home.

Question 14

Unit level activities

Answer 14

Where the consumption of resources is very strongly correlated with the number of units produced (all direct costs)

Question 15

Batch level activities

Answer 15

Resources are consumed in proportion to the number of batched produced - easier than traditional costing for the user to visualise the changing cost that will come about in the long term by changing a product mix or product schedule

Question 16

Product level activities

Answer 16

Consumption of resources may be related to the existence of particular products i.e. the activity is performed to sustain the existence of a product line (admin, product specification, purchasing)

Question 17

Facility level activities

Answer 17

It is accepted that some costs relate simply to being in business and cannot in any way be related to the production line (plant security, property taxes)

Question 18

When do ABC and absorption costing yield very different product costs?

Answer 18

Where overhead is primarily product or batch level activities.