Activity Based-Costing and Service Cost Allocation Methods

Question 1

Peanut Butter Costing (Traditional Costing)

Answer 1

Uses broad averages for assigning the cost of overhead uniformly to cost objects

Question 2

Product Cost Cross-subsidization

Answer 2

If a company undercosts one product, it will overcost at least one of its products

Question 3

Activity-Based Costing System

Answer 3

Allocates overhead to multiple cost pools and assigns the activity cost pool to products by means of cost drivers

Question 4

Cost Driver

Answer 4

Triggers a change in the cost activity

Question 5

Service Department Cost

Answer 5

Is a unit in an organization that contributes in a very indirect way to the conversion of raw materials to finished goods

> > Costs incurred in these departments should be ALLOCATED to the production departments to determine the costs of a product for decision making

Question 6

Direct Method

(Service Department Cost Allocation)

Answer 6

Direct allocation of service cost to the production department

Question 7

Sequential/Step Method

(Service Department Cost Allocation)

Answer 7

The cost of the initially-ranked service department affects the cost of the secondarily-ranked service department before allocation of costs to the production department