B3-M3 Costing Accounting 3

Question 1

what effect on the numbers of cost pools and allocation bases when using activity-based cost system vs a traditional cost system?

Answer 1

• Activity-based cost (ABC) system: tends to increase both number of cost pools and the number of allocation bases. ABC breaks down a production process into many activities. It the accumulates costs by activity (cost pools) using an appropriate base for each activity. ABC costing is recommended when more than one product is produced and those products do not uniformly consume indirect resources (heterogeneous consumption)
• A traditional cost system: use one cost and one allocation base (factory OH)

Question 2

what are terminology used in ABC?

Answer 2

• Activity: any work performed inside a firm
• Resource: an element that is used to perform (or applied to perform) an activity
• Cost drivers: closely correlated with the incurrence of manufacturing overhead costs in an activity center, and they are often used as allocation bases for applying OH costs to cost objects
• Resource cost driver: the amount of resources that will be used by an activity
• Activity cost driver: the amount of activity that a cost object will use, and it is used to assign the costs to the cost objects
• Activity centers: an operation necessary to produce a product is an activity center
• Cost pool: a cost pool is a group of costs (raw material or direct labor) or a specially identified cost center (a department or a manager) in which costs are grouped, assigned, or collected.

Question 3

what is a value chain?

Answer 3

it represents a series in which elements useful to the customer are added to the product. The value chain consists of primary activities (operations, inbound and outbound logistics, marketing and sales, and service) and support activities (procurement, human resources management, firm infrastructure, and technology development), all of which are designed to add value to the end customer

Question 4

what are terminologies of joint costing?

Answer 4

• Joint products: two or more products that are generated from a common input
• by-products: minor products of relatively small value that incidentally result from the manufacture of the main product
• split-off point: the point in the production process at which the point products can be recognized as individual products
• joint product cost: costs incurred in producing products up to the split off point
• separate cost: costs incurred on a product after the split off point