ACG4341 Chapter 5 Review

Question 1

Three guidelines to refine costing systems

Answer 1

Create homogeneous indirect-cost pools
Increase direct-cost tracing
Identify cost-allocation bases that have cause-and-effect relationships

Question 2

Batch-level

Answer 2

When goods are produced in large quantities or batches

Question 3

Facility-sustaining cost

Answer 3

Has the least cause-and-effect relationship with a cost allocation base; sometimes deducted as a separate lump-sum amount from operating income.
Ex. general administration costs, building security, top level management compensation

Question 4

Calculate budgeted indirect-cost rate per direct manufacturing labor-hour

Answer 4

Budgeted total costs in direct-cost pool / budgeted total quantity of cost-allocation base (labor hours)

Question 5

Activity-based costing (ABC) system

Answer 5

Refines a costing system by assignment of indirect costs to departments, processes, products, or other cost objects
May not always result in lower product costs
May breakdown single indirect-cost pools of costs related to other activities
Complex and expensive
Requires measurements to implement it

Question 6

Decision-making process

Answer 6

Step 1: identify products that are chosen cost object
Step 2: identify direct costs associated with each product
Step 3: group all budgeted indirect costs in a single cost pool
Step 4: identify indirect costs of each cost-allocation base

Question 7

Activity-based management (ABM)

Answer 7

method of management decision-making that uses activity-based costing information to improve satisfaction and profitability

Question 8

Cost hierarchy

Answer 8

categorizes various activity-cost pools on the basis of different types of cost drivers or cost-allocation bases
batch-level - material handling and quality-inspection costs with batches i.e. setup costs
facility-sustaining - top management compensation i.e. building rent cost
product-sustaining - costs of research, design, setup, marketing costs, engineering changes i.e. design cost
output unit-level - mass production i.e. machine depreciation

Question 9

Overcosting

Answer 9

Causes overpricing products/services, higher cost per unit, and loss of market shares to consumers and groups in marketplace

Question 10

Product sustaining cost

Answer 10

costs that support a particular product/service not related to batches or number of units

Question 11

Output unit-level

Answer 11

individual units of a product/service