Chapter 7 - Activity Based Costing Flashcards
When is ABC most useful?
ABC most useful when substantial Product Diversity exists (i.e. consumes O/H at different rates due to size, complexity…etc
What are the two common types of activity measures when costs are treated under ABC?
-Transaction driver
-Duration driver
What is a Transaction driver?
Simple count of the number of times an activity occurs.
What is a Duration driver?
A measure of the amount of time needed for an activity. (think of machine hours for example).
What are the 4 Costs that are treated under Activity–Based Costing?
*Unit-Level Activity (“Chocolate bar level”)
*Batch-Level Activity (“If you have to change the equipment every time you make a new product”)
*Product Sustaining Level Activity (“R&D, engineering etc”.)
You usually use all of this, and not only one.
Which costing system first assigns costs to activities and then to products?
A) volume-based costing
B) activity-based costing
C) production costing
D) unit-level costing
B) activity-based costing
What is the term for products having different consumption ratios for different overhead activities?
A) verhead diversity
B) volume costing
C) product diversity
D) activity-based costing
C) product diversity
A company has two inspectors, each earning a salary of $150,000. One inspector works exclusively on inspecting parts received from outside suppliers, while the other spends 40% of her time inspecting parts and 60% of her time inspecting final products. How much labour cost should be assigned to the activity of inspecting parts?
A) $210,000
B) $60,000
C) $300,000
D) $90,000
A) $210,000
The moving activity has an expected cost of $80,000. Expected direct labour hours are 20,000, and the expected number of moves is 40,000. What is the best activity rate for moving?
A) $4 per hour
B) $4 per move
C) $2 per move
D) $2 per hour
C) $2 per move
What is the aim of activity-based management?
A) to add new activities that decrease value
B) to reduce or eliminate non-value-added activities
C) to decrease the efficiency of necessary activities
D) to identify and eliminate all unnecessary activities
B) to reduce or eliminate non-value-added activities
