Activity Based Costing and Throughput Accounting

Question 1

What are direct costing systems used for?

Answer 1

Indirect costs are not assigned to cost objects so that only contributions to indirect costs are reported

Question 2

What are traditional costing systems used for?

Answer 2

Use unsophisticated methods to allocate indirect costs to cost objects

Question 3

What are activity-based costing systems used for?

Answer 3

Use sophisticated methods to allocate indirect costs to cost objects

Question 4

What are the stages of traditional systems?

Answer 4

1. Allocate costs to departments
2. Rely on a small number of volume based cost drivers

Question 5

What are the stages in activity-based costing systems?

Answer 5

1. Allocate costs to activities
2. Uses many second-stage cost drivers

Question 6

What is absorption costing?

Answer 6

Traces all manufacturing costs to products and treats non-manufacturing overheads as a period cost

Question 7

What are the limitations of traditional costing systems

Answer 7

Ignore non-volume related support activities
Assume that products consume all resources in proportion to their production volumes

Question 8

What is activity based costing

Answer 8

Uses volume and non-volume based cost drivers to improve the accuracy of cost analysis by improving the tracing of cost to products or customers