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

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Question 51

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It only makes sense to implement an ABC system when ________.

A) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive

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Question 52

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Identification of a cost-allocation base is not a critical element when using a strategy that will refine a costing system.

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Question 53

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A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________.

High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. If total advertising expense of $629,300 is allocated on the basis of sales, the amount allocated to the Large Department would be ________.

The fundamental cost objects of ABC are ________.

Which of the following statements is true of a peanut-butter costing system?

Dartmouth Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and cost information has been compiled: Assume a traditional costing system applies the $39,240 of overhead costs based on direct labor hours. What is the total amount of overhead cost assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)

Even though there are no inventories for service companies, ABC systems are of great use for service companies. Explain why and how.

At New England Goods Inc., product lines are charged for call center support costs based on sales revenue. Last year's summary of call center operations revealed the following: New England Goods Inc. currently allocates call center support costs using a rate of 0.6% of sales revenue. Required: a.Compute the amount of call center support costs allocated to each product line under the current system. b.Assume New England decides to use the average call length for information to assign last year's support costs. Does this allocation method seem more appropriate than percentage of sales? Why or why not? c.Assume New England decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000. Compute the amount of call center support costs assigned to each product line under this revised ABC system. d.New England Goods assigns bonuses based on departmental profits. How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information? e.Discuss the barriers for implementing ABC for this call center.

For each of the following activities identify an appropriate activity-cost driver. a.machine maintenance b.machine setup c.quality control d.material ordering e.production scheduling f.warehouse expense g.engineering design

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Under the revised ABC system, total overhead costs allocated to Sweatshirts will be ________.

Which of the following ordering of the levels best depicts the cost hierarchy within an ABC system?

Explain how a top-selling product may actually result in losses for the company.

For a manufacturing firm that produces multiple families of products requiring various combinations of different types of parts, what would be the best allocation base for human resource adminstration costs?

High Traffic Products Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. If total rent expense of $71,550 is allocated on the basis of square footage, the amount allocated to the Small Department would be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)

In activity based costing systems, limiting cost-allocation bases to only units of output strengthens the cause-and-effect relationship between the cost-allocation base and the costs in a cost pool.

Management accountants use the cost hierarchy to first calculate the ________.

Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Assume a traditional costing system applies the overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model? (Do not round interim calculations. Round the final answer to the nearest whole dollar.)

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information: Under the revised ABC system, supervision costs allocated to Sweatshirts will be ________. (Do not round interim calculations. Round the final answer to the nearest whole dollar.)

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