Exam 8: Activity-Based Costing

Activities in ABC can be classified as batch-level activities, product-sustaining activities, facility-sustaining activities and departmental activities.

Which of the following statements is/are true? i. Both traditional cost systems and ABC focus on resources supplied. ii. Plant and equipment is an example of a committed resource under an ABC system. iii. Committed resources always equal resources used.

Resource drivers are used to estimate the cost of resources consumed by a cost object.

An activity cost pool:

Characteristics of activity-based costing include:

Recent increases in downstream costs have occurred because of: i. increased advertising and product promotion. ii. increased customer servicing. iii. increased competition. iv. increases in product design.

Puff Animal Hospital looks after the health of household pets such as dogs, cats, birds and rabbits. The hospital wants to use an activity based costing system to allocate costs to each animal case it handles. These cases tend to vary in their complexity: some pets are here for a regular check ups and immunization; other pets have emergencies that require surgery. Some pets are very exotic and require the attention of the supervisor vet, others are common animals with common problems such that only the junior vets are needed. Puff Animal Hospital is quite large; on average there are five vets, a general assistant, and two receptionists on duty at one time. Which of the following is an example of a facility sustaining activity for Puff Animal Hospital?

Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000) and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products. The following information is also available: Number of machine hours per year: 20 000 machine hours Number of forklift moves per year: 500 moves Number of batches per year: 4000 batches Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X. Which of the following activities should be grouped together in the same activity cost pool?

Consider the following statements. Which of the statements is true?

One of the results of the inaccuracies arising from traditional costing systems may be:

Summer Ice Pty Ltd is a manufacturer of a range of ice cream products. The following is a list of activities, costs and quantities of activity drivers for a number of activities that occur in the factory. Under an activity-based costing system, what is the activity cost per unit of activity driver for measuring ingredients?

Which of the following are limitations of ABC? i. The system requires significantly more data. ii. The system requires extensive updating if the product range changes. iii. The inclusion of facility level costs greatly increases the accuracy of cost per unit.

Quality Carvings manufactures furniture. They have decided to develop an activity-based costing system. Shown below is each activity, its cost and the activity driver used to assign these costs to products. Under an activity-based costing system, what is the activity cost per unit of activity driver for processing orders?

In a simple activity-based product costing system:

Which of the following statements regarding activity-based costing (ABC) is false?

A cost driver is:

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver. The level of activity for the year is: Under an activity-based costing system, what is the activity cost per unit of activity driver for material handling?

Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products. The following information is also available: Number of machine hours per year: 20 000 machine hours Number of forklift moves per year: 500 moves Number of batches per year: 4000 batches Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X. The machining costs and quality inspection costs allocated to each unit of Product X are:

Which of the following rates would not be used to assign manufacturing overhead costs to products?

As an organisation expands it is common for their product offering to become diversified. Explain the reasons that would cause management to change to an activity based costing system and the benefits that could be expected by the organisation.