Chapter 4- Activity based costing Flashcards

1
Q

Activity based costing

A

allocates overhead to multiple activity cost pools and assigns the activity cost pools to production by means of cost drivers

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2
Q

activity cost pool

A

is a distinct type of activity such as ordering materials or setting up machines

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3
Q

Activity

A

any event, action, or work sequence that incurs cost when producing a product or providing a service

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4
Q

Cost driver

A

any activity that causes resources to be consumed

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5
Q

ABC overhead 2 stage process

A
  1. overhead is allocated to activity cost pools, each of which a distinct type or activity.
  2. Overhead in the cost pools is assigned to products using cost drivers
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6
Q

ABC 4 steps

A
  1. identify and classify the activities involved in the manufacture of specific products and assign overhead to cost pools.
  2. identify the cost driver that has a strong correlation to the costs accumulated in each cost pool.
  3. compute the activity base overhead for each cost driver
  4. allocate overhead costs to products using the overhead rates determined for each cost pool
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7
Q

Activity based overhead rate

A

estimated overhead per activity / expected use of cost drivers per activity

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8
Q

Cost assigned

A

expected use of cost drivers per product X Activity-based overhead rates

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9
Q

Activity Rate formula

A

Activity Cost pool overhead / Total cost driver activity

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10
Q

unit level

A

performed for each unit production, it increases every time a unit is produced.

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11
Q

batch level

A

performed every time a company produces another batch of product (not another unit)

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12
Q

product level

A

performed every time a company produces a new type of product

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13
Q

facility level

A

required to support or sustain an entire production process

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14
Q

value added activities

A

increases the perceived value of a product or service to customers.

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15
Q

non value added activities

A

adds cost, or increases the time spent on a product/ service without increasing its perceived value.

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16
Q

When to use ABC

A
  1. product lines differ in volume and manufacturing complexity
  2. product lines are numerous and diverse.
  3. overhead costs make up a big portion of total costs
  4. manufacturing process numbers have changed significantly.
17
Q

ABC objective

A

identify keys that generate costs and keep track of how many of those activities are completes for each service performed.
-to identity activities, cost pools and cost drivers.