Exam 5: Activity-Based Costing and Management

Improved direct cost tracing is a benefit of activity-based costing.

With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A cost hierarchy describes

A company manufactures household items sold at trade shows. The items, classified as either Trinkets or Widgets are manufactured on a common assembly line. Although different direct materials are used, the direct labour cost is the same for each product line. The plant-wide rate for allocating manufacturing overhead to its products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in changing the cost system to a cost driver concept. With the help of the accounting department, the manager has been able to establish the following relationships between production costs and some of the indirect manufacturing activities for August, along with the production data for the two product lines: Required: Using activity-based costing determine the total production cost of each of the two product lines for August and the cost per unit assuming all units started were completed.

Which of the following is not a feature of costing system refinement?

Engineering costs incurred to change product designs are which of the following?

Output unit-level cost is identical to batch-level cost in a system that costs based on activities.

Understanding the hierarchy of costs is critical when allocating costs to products.

Explain how activity-based costing systems can provide more accurate product costs than traditional cost systems.

Batch-level costs are resources sacrificed on activities undertaken to support specific products or services.

Activity-based cost systems create

Cost smoothing involves assigning costs in a non uniform manner to reflect the different utilization of resources by different products or services.

Use the information below to answer the following question(s). A transportation company provides bussing, limo and taxi service. The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service. Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement. Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion. Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses. The company's costing system has tracked the following activities for the month: -What indirect costs were accumulated for each major client for the month?

Activity-based costing can "unlock" savings, not apparent when traditional costing is used, because the system requires a closer examination of operations.

Come-On-In Manufacturing produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labour dollars. For 2012, Come-On-In compiled the following data for the two products: Last year, Come-On-In Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information: Required: a. Using the current traditional cost system, determine the estimated: c. Review the machine related costs above. What is a likely explanation for machine related costs being so high? What might explain why total machining hours for the deluxe doors (300,000 hours) are the same as for the standard doors (300,000 hours)? d. Using the activity-based costing data presented above, e. Is the deluxe door as profitable as the original data estimated? Why or why not?

Which of the following is not a characterization of activity-based costing?

If the cost of an activity increases with each hour of machine time, it is which of the following?

Which of the following is a sign that a "smoothing out" costing system exists?

A top-selling product might actually result in losses for the company.

Explain how traditional cost systems, using a single unit-level cost rate, may distort product costs.