Exam 7: Activity-Based Costing and Management

At least one cost driver is required for each ABC cost __________.

Cost accounting systems were originally developed to:

Life Lessons provides academic enrichment and review activities for high school students in 4 subject areas: English, mathematics, science, and history. In November 20x1, the firm's information system produced the following data: Number of Number of Percent of Direct Tutors Students Faculty Costs English 4 20 10\% \ 6,000 Mathematics 3 24 25 8,000 Science 5 15 50 12,000 History 2 8 15 3,000 Regardless of subject area, clients pay $50 per hour for tutoring services. Costs associated with the Life Lessons operations for November 20x1 included: Facility rent \ 2,500 Custodial services 1,800 Utilities 600 Computer equipment amortization 800 Advertising 400 Assume Life Lessons allocates facility rent, custodial services, and utilities on the basis of square metres occupied and computer equipment amortization on the basis of number of students. Advertising is not allocated. If students received 200 hours of mathematics tutoring in November 20x1, what will the total profit from mathematics tutoring be for the same period?

Similar to other costing systems that include allocation, ABC cost information may be misleading for decision making purposes. To combat this problem, costs within an activity can be classified as:

Activity-based management can be used to manage both quality and constrained resources.

Generally speaking, activity-based costing traces direct costs more accurately than traditional costing.

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: Harvest apples \ 25,000 Prepare apples for processing 20,000 Extract juice from apples 18,000 Process juice into apple juice concentrate, apple juice or apple cider 30,000 Package completed products 9,000 Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month. During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively. Which of the following activities is likely to be classified as product-level?

Le Château Joyal is an historic hotel in the heart of old Quebec City. It is owned by Riel Hotels, which operates additional properties in Halifax, Montreal, and Winnipeg. Le Château Joyal has 9 floors, with approximately 20 rooms per floor. Facilities also include a workout room, restaurant, and pool. The hotel is organized into 5 departments: front desk, engineering, housekeeping, food & beverage, and customer relations. As part of its operation, Le Château Joyal regularly incurs the following costs: General manager's salary Housekeeping supplies Utility costs Amortization on workout room equipment Advertising Food and beverage costs Amortization on restaurant equipment Advertising for the Riel Hotels chain is best described as a(n):

All of the following are uses of Activity-Based Management except:

In an ABC system, a cost driver must be chosen for each:

The best allocation base choice for an ABC cost pool is a(n):

Costs assigned to an activity pool for teaching children to swim at the regional park are $2,700 per month. Number of students is chosen as the cost driver. On average, 300 students take swim lessons monthly. What is the ABC allocation rate for this activity?

Value-added activities:

Which of the following statements about costing systems is true?

Each cost pool in an ABC system has its own cost allocation rate.

Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage:

Activities performed to insure defect-free production are called:

In an activity-based costing system, both organization-sustaining and facility-sustaining activities are assumed to be unaffected by the number of customers.

Managers can use activity-based management to control environmental costs.

Quick Start Engines has two departments, Assembly and Testing. You are given the following information about the costs of 5 activities that occur at the manufacturing plant monthly: Activity Total Costs Volume of Cost Driver Material handling \ 100,000 200,000 parts Supervision of direct labour 105,000 70 employees Janitorial and cleaning 150,000 3,000 hours Machining 240,000 6,000 machine hours Total costs \5 95,000 $\text { The above activities are used by the two departments as follows: }$ Assembly Testing Material handling 150,000 parts 50,000 parts Supervision of direct labour 30 employees 40 employees Time spent cleaning 2,000 hours 1,000 hours Number of machine hours 4,000 machine hours 2,000 machine hours How much of the total activity costs will be allocated to Assembly?