Exam 7: Activity-Based Costing and Management

Describe two uncertainties that arise when managers are developing cost pools under an ABC system.

Explain why measurement error could increase as the number of cost pools increase in an ABC system.

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 $595,000 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 janitorial costs will be allocated to Testing?

When applying ABC concepts to the determination of product costs, the first step is to identify activities.

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 $595,000 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 material handling cost will be allocated to Assembly?

A cost driver is:

When implementing an ABC system, the accounting information system may require modifications to:

Suppose the Burlington Donor Clinic of Canadian Blood Services has identified an individual blood drive as its cost object. It has established the following cost pools in developing an activity-based costing system: Non-medical personnel costs. Salaries and wages of the office staff who organize blood drives and keep donor records. Medical personnel costs. Salaries and wages of doctors and nurses who staff a blood drive. Medical supplies. Cost of needles, bandages, and containers for donated blood. Non-medical supplies. Costs of refreshments for blood donors and recordkeeping supplies. Blood drives typically require 5 to 7 beds for blood donors. Each donation requires one container (in the medical supplies cost pool), one needle, and one set of bandages. Canadian Blood Services normally receives donated space from a community organization (such as a university or company)for each blood drive. The most likely cost driver for the medical supplies cost pool is:

FNG Corporation employs 4 purchasing agents. Rick processes purchase orders for vendors starting with the letters A through H, while Merrill does the same task for vendors from I through N. Esteban deals with vendors in the O through R range, and Kathy handles the rest of the alphabet. The most likely cost driver for the purchasing agents' salaries is the:

As the number of activities in an ABC system increases, measurement error tends to:

To provide better decision making information about products, ABC systems can be set up with separate activity pools and cost rates for: I. Different levels of the ABC cost hierarchy II. Committed and flexible costs within each cost pool III. Different customers based on profitability levels

Uncertainties associated with ABC and ABM include: I. The appropriate choice of activities II. The appropriate choice of cost drivers III. Employee response to the system

Tutors-R-Us 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 Tutors-R-Us 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 groups of costs are most likely to have a common cost driver?

NRL Corporation's accounting information system reported warranty repair and product replacement costs totalling $12,000 in a recent accounting period. These costs are an example of which of the following quality costs?

ABC can be used to determine the costs of quality and to help refine quality strategies. Quality activities are commonly classified as:

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

GPK uses proportional costs, not variable costs.

Which of the following is not a benefit of an ABC system?

Managers can use ABM information to manage customer profitability. The most valuable groups of customers are those having the following characteristics: Types of Service Products Ordered Requirements

The cost of implementing an ABC system is likely to be lower if the number of times an activity is performed: