Chapter 7: Activity-Based Costing: A Tool to Aid Decision Making Flashcards
ABC Costing Method-
Provides managers with cost information strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs.
ABC excludes __ __ costs and idele capacity costs from product costs
organization sustaining
ABC assigns both __ and __ costs to products on a cause and effect basis
manufacturing and nonmanufacturing
ABC uses __ cost pools. ETC-
multiple; plantwide overhead rate, departmental overhead rate, activity-based costing
Activity-
an event that causes the consumption of overhead resources.
Activity Cost pool-
a “cost bucket” in which costs related to a single activity measure are accumulated
Activity measure-
an allocation base in an activity-based costing system, a term cost driver is also used to refer to this.
Transaction driver-
a simple count of the number of times an activity occurs
Duration driver-
a measure of the amount of time needed for an activity
Manufacturing companies 5 basic activity classifications:
- unit level
- product level
- batch level
- organization-sustaining
- customer-level
Types of cost pools:
- Customer order
- Design order
- Order size
- Customer relations
Customer orders-
assigned all costs of resources that are consumed by taking and processing customer orders
Design orders-
assigned all costs of resources consumed by customers requested design changes
Order size-
assigned all costs of resources consumed as a consequence of the number of units produced
Customer relations
assigned all costs associated w/ maintaining relations with customers.
Most companies do not use ABC for external reporting because… (3)
- external reports are less detailed
- ABC does not conform to GAAP
- Auditors may be suspect of the subjective allocation process based on interviews with employees
ABC usually excludes manufacturing overhead from its calculations whereas traditional absorption costing includes it. T/F
False.
A batch-level activity cost is unaffected by the number of units in the batch. T/F
True.
What level of activity is assembling products?
Unit Level Activity
What level of activity is setting up machines?
Batch Level Activity
What level of activity is advertising products?
Product Level Activity
What level of activity is heating a manufacturing facility?
Organization Sustaining Activity
Traditional cost systems usually overcost high volume products and undercost low volume products when compared to activity-based costing systems. T/F
True.
What is an example of a duration driver?
Direct labor hours
