Exam 5: Activity-Based Costing and Activity-Based Management

The risk of peanut-butter costing rises when broad averages are used across multiple products without managers considering the true amounts of resources consumed in the making of each product.

How are cost drivers selected in activity-based costing systems?

As ABC systems get very detailed and more cost pools are created,more allocations are necessary to calculate activity costs for each cost pool,which increases the chances of misidentifying the costs of different activity cost pools.

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass,Chrome,and White.Production takes 25,25,and 10 machine hours to manufacture 1000-unit batches of brass,chrome and white faucets,respectively.The following additional data apply: PER UNIT data: Overhead cost based on direct labor hours Hours per 1000-unit batch: Total overhead costs and activity levels for the year are estimated as follows: Required: a.Using the traditional system,determine the operating profit per unit for each style of faucet. b.Determine the activity-cost-driver rate for setup costs and inspection costs. c.Using the ABC system,for each style of faucet d.Explain the differences between the profits obtained from the traditional system and the ABC system.Which system provides a better estimate of profitability? Why?

Lavender Company is a logistics company and has recently implemented ABC system.Using activity-based information,it decides to reduce the bulkiness of the packages delivered,thereby reducing costs.This suggests that ABC system helps managers in ________ decisions.

High Traffic Products Corporation has two departments,Small and Large.Central costs could be allocated to the two departments in various ways. If advertising expense of $432,600 is allocated on the basis of sales,the cost per cost driver rate would be ________.

Which of the following statements is true of ABC systems?

Which of the following is a sign that an ABC system may be useful for an organization?

The cost data produced by an ABC system for either a service or a product are only derived from indirect costs.

What are the four parts of the cost hierarchy.Briefly explain each part,and contrast this cost hierarchy to the fixed-variable dichotomy?

Service companies,in particular,find great value from ABC because a vast majority of their cost structure is composed of ________ costs.

Increased used of automation,computer integrated manufacturing,and utilization of robots have lead to an increase in indirect costs relative to direct costs.

ABC systems create ________.

ABC reveals opportunities to reduce costs on nonvalue added activities.

For a company with diverse products,undercosting overhead of a product will lead to product-cross -subsidization which means that:

Nichols Inc.manufactures remote controls.Currently the company uses a plant-wide rate for allocating manufacturing overhead.The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour. What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts,5 direct manufacturing labor hours,and 3 minutes of inspection time.

ABC costing systems cannot be used in marketing decisions.

Extreme Manufacturing Company provides the following ABC costing information: The above activities are used by Departments A and B as follows: How much of correspondence costs will be assigned to Department A?

Service-sustaining costs are the costs of activities that managers cannot trace to individual services but that support the organization as a whole.

Advanced Technology Products produces 10 different fastners.Each time a type of fastener is produced,the equipment must be stopped and items such as filters and drill bits must be changed,oil must be added to the equipment and some parts need lubrication.This work must be done before the products can be produced,the costs related to this activity would be part of which cost pool?