chapter 5 cost accounting! Flashcards
Peanut Butter Costing
A particular costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects when the individual products or services , may in fact, use those resources in nonuniform ways
Product Undercosting
a product consumes a high level of resources but is reported to have a low cost/unit
Product Overcosting
A product consumes a low level of resources but is reported to have a high cost/unit
Product Cost Cross Subsidization
costing outcome where one undercosted (overcosted) product results in at least one other product being overcosted (undercosted)
Refined Costing System
reduces the use of broad averages for assigning the cost of resources to cost objects
Direct Cost Tracing
Identify as many DC as economically feasible - reduce costs that can be classified as ID, minimize amount allocated
Indirect Cost Pools
expand the # of ID cost pools until homogenous - all costs have same or similar cause and effect relationship w/ a single cost driver and used as cost allocation base
Cost Allocation Base
whenever possible, use the cost driver (cause of IDc’s) as the cost allocation base for each homo ID cost pool (effect)
Activity Based Costing
refines a costing system by identifying individual activities as the fundamental cost objects
Activity
an event, task, or unit of work w/ a specific purpose - things a firm does
Cost Hierarchy
categorization of indirect costs into different costs pools on the basis of the different types of cost drivers, or cost-allocation bases, or different degrees of difficulty in determining cause and effect relationships
Output Unit Level Costs
the costs of activities performed on each individual unit of a product or service
Batch Level Costs
the costs of activities related to a group of units of a product or service rather than each individual unit of a product or service
Product (Service) Sustaining Costs
Costs o activities undertaken to support individual products/services regardless of the # of units or batches in which the units are produced
Ex: Design/R&D costs
Product (Service) sustaining Costs
Facility Sustaining Costs
costs of activities that cannot be traced to individual products/services but that support the organization as a whole
Ex: Administrative Costs
Facility Sustaining Costs
Activity Based Management
a method of management decision making that uses ABC info to improve cost satisfaction & profitability
If products are different, then for costing purposes:
an ABC costing system will yield more accurate cost numbers
Overcosting a particular product may result in
loss of market share
Undercosting of a product is most likely to result from:
overcosting another product
A company produces three products; if one product is overcosted then:
one or two products are undercosted
Misleading cost numbers are most likely the result of misallocating:
indirect costs
An accelerated need for refined cost systems is due to:
intense competition
The use of a single indirect-cost rate is more likely to:
undercost both low-volume complex products and undercost lower-priced products
Refining a cost system includes:
identifying the activities involved in a process
Greater indirect costs are associated with:
specialized engineering drawings; quality specifications and testing; inventoried materials and material control systems
Design of an ABC system requires:
that a cause-and-effect relationship exists between resource costs and individual activities, AND an adjustment to product mix
A single indirect-cost rate may distort product costs because:
there is an assumption that all support activities affect all products
Traditional cost systems distort product costs because:
they apply average support costs to each unit of product
Activity-based costing (ABC) can eliminate cost distortions because ABC:
develops cost drivers that have a cause-and-effect relationship with the activities performed
Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into:
greater overhead costs for each product line
Design costs are an example of:
product-sustaining costs
Unit-level cost drivers are most appropriate as an overhead assignment base when:
only one product is manufactured
ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.
variable
