Chapter 5 - Activity Based Costing and Activity-Based Management

Question 1

What is product overcosting?

Answer 1

It occurs when a product is reported to have a higher cost than it actually does

Question 2

What is product undercosting?

Answer 2

It occurs when a product is reported to have a lower cost than it actually does.

Question 3

What is cost cross- subsidization?

Answer 3

The instance where when one product line is undercosted another line will be overcosted.

Question 4

What is ABC costing?

Answer 4

An approach to costing that focuses on individual activities as the fundemental cost objects. It uses the costs of these activities as the basis for assigning costs to other cost objects such as products or services.

Question 5

What is a cost hierarchy?

Answer 5

Categorizes various activity cost pools on the basis of the different types of cost drivers, cost-allocation bases, or different degrees of difficulty in determining cause-and-effect (or benefits-received) relationships.

Question 6

What is activity based management?

Answer 6

A method of management decision making that uses activity-based costing information to improve customer satisfaction and profitability.