chapter 7

Question 1

ABC differs from traditional accounitng in 4 ways

Answer 1

1. ABC assigns both types of costs to products (manu and non manu costs)
2. ABC does not assign all manu costs to products, (most but not all)
3. ABC uses more cost pools
4. ABC bases level of activity on capacity

Question 2

ABC capacity

Answer 2

products are charged for the costs of capacity they use.

Question 3

unused capacity in ABC …

Answer 3

treated as period expense

Question 4

why does ABC use uses more cost pools and unique measures of activity

Answer 4

to better understand the costs of managing and sustaining product diversity

Question 5

activity

Answer 5

An event that causes the consumption of overhead resources

Question 6

activity cost pool

Answer 6

A “cost bucket” in which costs related to a particular activity measure are accumulated

Question 7

activity measure

Answer 7

An allocation base in an ABC system, also called a cost driver.

Question 8

2 common types nof activity measure

Answer 8

transaction drivers and duration drivers

Question 9

transaction driver

Answer 9

Simple countof the number oftimes an activityoccurs.

Question 10

duration driver

Answer 10

A measureof the amountof time neededfor an activity

Question 11

5 steps for implementing abc

Answer 11

Identify and define activities, activity cost pools and activity measures.

Assign overhead costs to activity cost pools.

Calculate activity rates.

Assign overhead costs to cost objects using the activity rates and activity measures.

Prepare management reports.

Question 12

5 activity cost pools define and identify

Answer 12

customer orders, product designs, order size, customer relations, other

Question 13

customer orders

Answer 13

assigned all costs of resources that are consumed by taking and processing customer orders

Question 14

product designs

Answer 14

assigned all costs of resources consumed by designing products.

Question 15

order size

Answer 15

assigned all costs of resources consumed as a consequence of the number of units produced

Question 16

customer relations

Answer 16

assigned all costs associated with maintaining relations with customers

Question 17

other

Answer 17

assigned all overhead costs that are not associated with the other cost pools.

Question 18

equation to Assign overhead costs to activity cost pools.

Answer 18

take the overhead cost * % in given activity cost pool

Question 19

calculating activity rates

Answer 19

total cost of each activity / total activity level for each

Question 20

benchmarking

Answer 20

used to compare activity cost information with world-class standards of performance achieved by other organizations

Question 21

Most companies do not use ABC for external reporting because

Answer 21

1. external is less detailed than internal reports
2. may be difficult to make changes to accounting system
3. abc does not conform GAAP
4. auditors may be ssupect of allocation process

Question 22

when to know of need for ABC

Answer 22

sales increasing profits decreasing
direct labour is small % of total costs

Question 23

customer profitability analysis

Answer 23

Customer profitability analysis uses
activity-based costing to determine
the activities, costs, and profit associated with serving particular customers