Exam 5: Activity-Based Costing and Management

Use the information below to answer the following question(s). Fran Ferry Company had the following activities, pooled costs, and physical flow of driver units. The company uses activity-based costing. The above activities are used by departments A and B as follows: -How much of the account billing cost will be assigned to Department B?

Answer the following question(s) using the information below. Wallace Printing has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 10 million pages. For 2012 Wallace Printing decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2012, two customers, Wayward Insurance and Hapless Systems, are expected to use the following printing services: -If manufacturing overhead costs are considered one large cost pool and are assigned based on 10 million pages of production capacity, what is the cost driver rate?

A cost hierarchy is a categorization of costs into different cost pools on the basis of different classes of cost drivers or different degrees of difficulty in determining cause-and-effect relationships.

Activity-based costing relies heavily on broad averages to assign costs to jobs, products, and services.

If the cost of an activity increases with the quantity of items purchased, it is which of the following?

Using a broad average to assign costs to products or services may lead to undercosting or overcosting.

Unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

In the monthly management meeting, each manager was asked to come up with suggestions for controlling costs. Some managers favoured a simple across-the-board cut in expenditures, with every department accepting the same percentage reduction in their budget. This was supported by several managers as the fairest means to save costs. Your assistant attended the meeting in your absence and suggested that the company consider switching to activity-based costing. Unfortunately, the more he explained, the less support he received, particularly when he mentioned that more information would have to be collected, there would be implementation costs, and that what really mattered were nonfinancial variables, called activities. The meeting ended with everyone wondering how such an idea could lead to cost savings. Required: Explain how an ABC system should be able to save money, even though it focuses on activities, rather than just costs. Compare your assistant's suggestion to an across-the-board cut as a means to save money.

The costs of hiring building security would be which of the following?

Answer the following question(s) using the information below. Ernsting Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2012, manufacturing overhead cost estimates total $420,000 for an annual production capacity of 12 million pages. For 2012 Ernsting Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overhead costs, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during the analysis: During 2012, two customers, Wealth Managers and Health Systems, are expected to use the following printing services: -Using pages printed as the only overhead cost driver, what is the manufacturing overhead cost estimate for Wealth Managers during 2012?

Using a broad average to allocate costs to products is called

One of the benefits of an ABC system is that by highlighting different activities, you can ignore the different levels of activities, such as individual units of output versus batches of output.

One of the aspects of ABM is eliminating activities that do not add value.

How does direct cost tracing improve cost accuracy?

A primary reason for assigning selling and distribution costs to products for analytical purposes is

Which of the following can be described as a fiduciary duty of cost assignment?

Which of the following statements about activity-based costing is true?

An ABC system is one building block of activity-based management (ABM). The second building block is

A refined costing system accounts for indirect cost allocation bases as non-financial variables.

A four-part cost hierarchy includes