Ch 18 - ABC

Question 1

Four steps to Activity Based Costing

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Answer 1

1. Activity : identify the activities, estimate total indirect cost for each
2. Cost driver : identify cost driver for each activity, estimate total quantity of the allocation base
3. Allocation rate : compute Cost Allocation Rate
   Allocation rate = est. total indirect cost / est. total quantity
4. Indirect cost : allocate indirect cost to the activity
   Activity cost = cost allocation rate x actual quantity

Question 2

ABC stands for

Answer 2

Activity Based Costing

Question 3

Allocation rate = …

Answer 3

Allocation rate = est. total indirect cost / est. total quantity

Question 4

Activity cost = ….

Answer 4

Activity cost = cost allocation rate x actual quantity

Question 5

Target pricing = …

Cost-based pricing = ….

Answer 5

Target pricing = target sales price - desired profit (aims low)

Cost-based pricing = full product cost + desired profit
(aims high)