Exam 7: Activity-Based Costing and Management

Activity-based management relies on:

Unit-level costs in ABC:

Which of the following do managers use in choosing activities and cost drivers to include in an ABC system?

When managers use ABC cost allocation rates for decision making without distinguishing between flexible and committed costs, their estimates of incremental costs are biased upward or downward. If activity levels are steadily increasing over time, this bias would provide:

ABC systems differ from traditional systems in that ABC systems:

Which costs are least likely to be allocated to units under ABC?

GPK uses proportional costs, not variable costs.

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 Which of the following is the most logical allocation base for facility rent if the relevant cost object is a subject area (product line)?

Organizations interested in using activity-based management must first implement an activity-based costing system.

A cost driver is:

The costs of designing and implementing an ABC system include employee time and training.

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. Assume processing costs are allocated on the basis of number of machine setups. How much processing cost will be allocated to each product line?