EXAM 4 Flashcards
If managers attempt to recover the costs with a 2) ___ number of units, they are likely to meet 3) re___ in the market, resulting in 4) d__ for even 5) f___ units.
With lower production, the reported 5.1) p___t costs 6) __ even more. This can set off a 7) ___us cycle of attempting to 8) ___ a fixed amount of costs with 9)___ and ___ units until the firm is producing 10) ___ units.
This is called the 11) ___ sp___
2) smaller
3) resistance
4) demand
5) fewer
5.1) product
6) increase
7) vicious cycle
8) cover
9) fewer and fewer
10) no
11) death spiral
Define Death Spiral
a process that begins by 1) ____ to 2) ____ price to meet reported 3) ___ cost, 4) ____ market, reporting still higher costs, etc. until the firm is 6) ____ of business
-the process may result in demand for even 7) \_\_\_ units
1) attempting
2) increase
3) product
4) losing
6) out
7) fewer
Death Spiral can begin in many ways
- can occur even in firms with 1) in_____ d____
EX.
-a firm is likely to add 2) ___ with increasing demand. This can be a new form of plant and equipment.
-an increase in capacity is accompanied by an increase in 3) ___ (___) costs without a 4) si___ in___ output, at least not immediately.
1) increasing demand
2) capacity
3) fixed (overhead)
4) similar increase
The reason for the capacity to increase is an expected 1) i___ in 2) ___e demand.
However, if the accounting system computes product costs based on relatively 3) ____ -term demand estimated (EX. for the next year), it will 4) in___ in the 5) pr____costs the costs of the 6) ex___ capacity that exists for growth.
Using the reported product costs, managers will attempt to 7) re___ the excess capacity costs from current customers, who are 8) u___ to be willing to pay, assuming there are competitors without the excess capacity.
In this case, the death spiral can lead companies to build 9) n___ pl___ only to see them idle because of 10) re____ demand.
1) increase
2) future
3) short
4) include
5) product
6) excess
7) recover
8) unlikely
9) new plants
10) reduced
The basic approach in product costing is to 1) al____ costs in the cost 2) p___ to 3) in___ cost 4) _____, which are the 5) pr____/se___ of 6) in___
1) allocate
2) pools
3) individual
4) objects
5) products/services
6) interests
Two-Stage allocation
First Stage costs objects are the 1) ___ accounts (EX. 2) su___, de___, etc)
The two-stage approach allowed us to 3) se___ 4) pl____ or ____overhead into 5) ___ or m___ p___ based on the account which the costs were 6) ____
The allocation in the first stage, although simple, allowed us then to select 7) mu___ cost d___, (EX. direct labor and machine hours) that were used to allocate costs to products
1) overhead
2) supplies, depreciation
3) separate
4) plant or manufacturing
5) two or more pools
6) recorded
7) multiple cost drivers
Choice of Cost Allocation Methods: Cost Benefit Decision (plantwide rate or departmental rates)
The choice of whether to use a plantwide rate or departmental rates depends on the 0) pr___s and the 00) pro____ process.
If a company manufactures products that are similar and use the same set of resources, the 1) ___ is better.
If multiple products use the manufacturing facilities in many different ways, the 2) ____ is better
0) products
00) production
1) the plantwide rate
2) departmental rate
Typically, when we go from a single plantwide rate to activity base costing
-we shifts costs from 1) ____ volume 2) s___units to 3) l____ volume 4) c____ units
1) high
2) standard
3) lower
4) custom
Choice of Cost Allocation Methods: Cost Benefit Decision (plantwide rate or departmental rates)
Managers need to make a decision about plantwide V departmental rates based on the 1) c__ and be___s of the information inherent in each system.
Selecting more complex allocation methods requires more 2) ti__ and s___ to collect and process accounting information. Such incremental costs of additional information must be justified by an increase in 3) be___ from 4) im___decisions.
1) costs and benefits
2) time and skill
3) benefits
4) improved
Define Activity-based costing (ABC)
It’s a 0) ___- ____ costing method that 1) ___ assigns costs to 2) a___ and then assigns them to 3) __ based on the products’ 4) co___ of a___
0) two-stage
1) first
2) activities
3) products
4) consumption of activities
Activity-based costing (ABC)
An activity is any 1) di___ task that an organization undertakes to 2) m___ or de___ a 3) pr____/se____
Why use ABC?
Activity-based costing is based on the concept that products 4) co____ ___ and activities consume 5) r____
1) discrete
2) make or deliver
3) product/service
4) consume activities
5) resources
Developing Activity-Based Costs
Activity-based costing involves the following 4 steps
Step 1: 1) ___ the activities, that 2) c___ resources and 3) a____ costs to them
-can take 4) ____s to do
-it’s 5) c___
-it’s the 6) _____ part of this process
Step 2: Identify the 7) ___ ___(s) associated with each activity
Step 3: Compute a 9) ___ __ per cost ___ unit/transaction:
Step 4: 10) ___ costs to p__ by multiplying the 11) ___ dr___ rate by the 12) ___ of cost driver units consumed by the products
1) Identify
2) consume
3) assign
4) years
5) costly
6) hardest
7) cost driver(s)
9) cost rate per cost driver
10) Assign costs to products
11) cost driver rate
12) volume
Define cost driver
factors that 1) c___ or “____” an activity costs
1) cause or “drive”
Identifying Activities That Use Resources
-often the most interesting and challenging part of the exercise is 1) id___ activities that use 2) ___ because it requires an 3) __ of 4) ___ the activities required to make a 5) ___
When managers step back and analyze the process (activities) they follow to produce a good/service, they often uncover many 6) ____ -__e steps that they can 7) e___
1) identifying
2) resources
3) understanding
4) all
5) product
6) nonvalue-added
The best cost driver is one that is casually related to the cost being 1) ____. Finding an allocation base that is casually related to the cost is often 2) ___ possible.
With activity-based costing, the selection of an allocation base (or cost driver), is often 3) ___ because we can use a measure of the 4) ____ __me
1) allocated
2) not
3) easier
4) activity volume
In the ABC two-stage cost system, the first stage consists of 1)__. (NOT ___
The first stage allocated costs to 2) ____, not 3) ___
1) activities
2) activities
3) departments
NOT departments
Comparing cost flow diagram for activity based cost system and the 2 stage cost flow diagram
2 major differences
- Activity-based costing system, the first stage allocates 1) ___, not 2) ___
- The nature of 3) ___ ___, they are proportional to production 4) ___ (volume related)
1) activities
2) departments
3) cost drivers
4) volume
The distinctive feature of activity-based costing is that it recognizes that OH costs are caused by 1) ____ and that some activities are 2) d___ by something 3) o___ than production volume
1) activities
2) driven
3) other
Define cost hierarchy
classifies cost drivers by general 1) di__ or levels of 2) ___
-this is the 3) cl____n of 4) c____ dr___ into general 5) le___ of ac___.; ___me, b___, ___ct, fa___, etc.
1) dimensions
2) activity
3) classification
4) cost drivers
5) levels of activity
6) volume, batch, product, facility
- Different cost allocation methods result in different estimates of how much it costs to make a product
- Activity-based costing provides more detailed measures of costs than do plantwide or department allocation methods
- Production also benefits because activity-bassed costing provides better information about how much each activity costs. In fact, it helps identify cost drivers that were previously unknown. To manage costs, production managers learn to manage cost drivers
- Activity-based costing provides more information about product costs but requires more recordkeeping. Managers must decide whether the benefits of improved decisions justify the additional cost of activity-based costing compared to department or plantwide allocation
- Installing activity-based costing requires teamwork between accounting, production, marketing, management, and other nonaccounting employees.
2 Stage Allocation
First Stage: allocate 1) __ costs to 2) ____
Second Stage: allocate 4) ____ ____ costs to the 5) p____/se____ 6) (fin_____)
1) OH
2) departments
4) department OH
5) products/services
6) finishing
Define Plantwide Allocation Method
all OH costs are recorded in one 1)___ pool and applied to products using one 2) __ allocation rate for the entire plant
-one set of rates to allocate OH for products for all 3) ____
1) cost pool
2) OH allocation
3) departments
Define Departmental Allocation Method
OH costs are 1) t___ to 2) s___ departments and applied to products using a 3) ___ allocation rate
-one cost pool for each 4) ___
1) traced
2) separate
3) department
4) department
Activity Based Costing (ABC) is a two-stage product costing method, what do each stage do?
Stage 1: assign costs to 2) ___
Stage 2: assign costs to 3) ___ based on the 4) ___ of ___ activity
2) activities
3) products
4) use of each