Chapter 4

Question 1

unit-level product costing

Answer 1

overhead costs are assigned to products using predetermined overhead rates

Question 2

predetermined overhead rate =

Answer 2

budgeted annual overhead / budgeted annual driver level

Question 3

applied overhead =

Answer 3

overhead rate x actual driver usage

Question 4

unit-level drivers

Answer 4

factors that measure the demands placed on unit-level activities by products

Question 5

unit-level activities

Answer 5

activities performed each and every time a unit of a product is produced

Question 6

5 most commonly used unit-level drivers

Answer 6

units produced
direct labor hours
direct labor dollars
machine hours
direct material dollars

Question 7

overhead variance

Answer 7

the difference between actual overhead and applied overhead

Question 8

under-applied overhead

Answer 8

actual > applied
must add more OH
COGS should be DR
(or FG, WIP and COGS if material)

Question 9

over-applied overhead

Answer 9

actual < applied
must decrease OH
COGS should be CR
(or WIP, FG, and COGS if material)

Question 10

Immaterial variance

Answer 10

assign to cost of goods sold

Question 11

Material variance

Answer 11

allocate among work-in-process inventory, finished goods inventory, and cost of goods sold

Question 12

departmental rates

Answer 12

costs assigned to individual production department, creating departmental overhead cost pools
unit-level drivers used to compute predetermined overhead rates for each department
overhead is assigned to products by multiplying the departmental rates by the amount of the driver used in the respective departments

Question 13

non-unit-based drivers

Answer 13

are factors, other than the number of units produced, that measure the demands that cost objects place on activities

Question 14

non-unit-related overhead costs

Answer 14

plantwide and department rates assume that a product’s consumption of overhead is directly related to units produced

Question 15

consumption ratio

Answer 15

proportion of each activity consumed by a product

Question 16

product diversity

Answer 16

products consume overhead activities in different proportions
–caused by differences in product size, setup times, batch size, etc.

Question 17

activity inventory

Answer 17

a simple list of activities identified

Question 18

activity attributes

Answer 18

nonfinancial and financial information items that describe individual activities

Question 19

activity dictionary

Answer 19

lists the activities in an organization along with desired attributes

Question 20

primary activity

Answer 20

consumed by the final cost object

Question 21

secondary activity

Answer 21

consumed by intermediate cost objects

Question 22

activity-based costing system

Answer 22

assign the cost of resources to activities
cost of an activity is the resources consumed by the activity
if the resource is split between more than one activity, determine a resource driver
–assign the cost of secondary activities to primary activities

Question 23

resource drivers

Answer 23

are factors that measure the consumption of resources by activities

Question 24

steps of activity-based costing system

Answer 24

1. assign the cost of resources to activities
2. assign the cost of secondary activities to primary activities
3. identify cost objects and specify the amount of each activity consumed by them
4. calculate primary activity rates
5. assign activity costs to cost objects
6. classifying activities into categories aids in product costing because the cost behavior differs by level

Question 25

time-driven ABC

Answer 25

eliminates the need to identify resource drivers, eliminating the need for much of the detailed implementation interviews

• -calculate total operating cost of a department or process
• -calculate capacity cost rate by dividing the total resource cost by the practical capacity of resources supplied
• -estimate the time to perform one unit of activity

Question 26

activity cost =

Answer 26

capacity cost rate x time to perform one unit of activity x total activity output = activity rate x total activity output

Question 27

unit-level activities

Answer 27

are those that are performed each time a unit is produced

Question 28

batch-level activities

Answer 28

those that are performed each time a batch is produced (setups, inspections, etc.)

Question 29

product-level activities

Answer 29

are those activities performed that enable the various products of a company to be produced

Question 30

facility-level activities

Answer 30

are those that sustain a factory’s general manufacturing processes