Chapter 5 Flashcards
Why is there an increasingly competitive global business environments?
Using technology to increase productivity
More emphasis on cost measurement and control
Eliminating nonvalue-added activities
More emphasis on quality
What is a single companywide allocation rate based on?
Direct labour is used to allocate overhead to products
What is the labour-intensive process as a single companywide cost driver?
Overhead costs are small
Overhead allocations may be inaccurate
What is the automated process as a single companywide cost driver?
Overhead costs are larger
Inaccurate overhead allocation can lead to questionable product cost information
Why do companies use activity-based cost drivers?
To improve the accuracy of indirect cost allocations
What is ABC?
2 stage allocation process that employs a variety of cost drivers
Stage 1:
Assign costs to pools according to activities that cause costs to be incurred
Stage 2:
Allocate costs in the activity pools to products using a variety of cost drivers
What are activity centers?
To reduce recordkeeping costs, companies group related activities into hubs called activity centers
What are types of production activities?
Unit level - incurred each time good is made
Batch level - incurred each time a batch is made
Product level - Supports either type of good
Facility level - benefits the entire process
What are differences between volume-based and ABC drivers?
Volume-based drivers are appropriate for indirect costs that increases/decrease relative to the volume of activity
ABC improves the accuracy of allocations by using a combination of volume and activity based cost drivers
What is quality?
Represents the degree to which actual products and services conform to design specifications
Design and conformity
What are costs incurred to assure quality conformance?
Prevention costs
Appraisal costs
Internal failure costs
External failure costs
What is TQM?
Managing quality costs to achieve the highest level of customer satisfaction
