Chapter 4

Front 1

What is activity based costing?

Back 1

An approach for allocating overhead costs

Front 2

Assigning overhead costs under traditonal systems:



True/Flase

With a plant wide overhead rate, a single predetermined overhead rate is used throughout the entire factory operation to assigne overhead.

Back 2

True

Front 3

What is often the allocation base under the traditional systems?

Back 3

Direct labor hours

Front 4

What has greatly decreased the amount of direct labor required in the manufacture of many products while using the traditional systems?

Back 4

Automation. So, in some companies, direct labor may not be the appropriate base for assigning overhead costs.

Front 5

What do those companies use when they can't use direct labor for assigning overhead?

Back 5

Departmental overhead rates

Front 6

What is departmental overhead rates?

Back 6

The allocation bases depend on the nature of the work performed in each department.

Front 7

What would be used for the base in labor intensive departments while using departmental overhead rates?

Back 7

Labor hours

Front 8

What would be used as a base in a highly automated department while using departmental overhead rates?

Back 8

Either machine hours or units of products.

Front 9

Whats one of the downsides of using departmental overhead rates?

Back 9

It may not correctly assign overhead costs in certain situations.

Front 10

What is activity based costing designed to do?

Back 10

Reflect the diverse factors more accurately when costing products.

Front 11

Abc costing is suitable when:

Back 11

1) overhead costs constitute a significant portion of total costs.

Front 12

ABC is suitable when:

Back 12

2) product lines differ greatly in volume and manufacturing complexity.

Front 13

ABC is suitable when:

Back 13

3) product lines are numerous, diverse, and require differing degrees of support services

Front 14

ABC is suitable when:

Back 14

4) Marketing or other managers need the data when making pricing or other decisions.

Front 15

What is the first step of ABC?

Back 15

Allocate overhead to multiple activity pools.

Front 16

What is an activity?

Back 16

Any event, action, transaction, or work sequence that causes the consumption of overhead resources.

Front 17

What is an activity cost pool?

Back 17

A distinct type of activity. Ex: processing customer orders, designing a product, odering materials, setting up machines, and producing the order.

Front 18

What is the second step in ABC?

Back 18

Identify the cost driver that has a strong correlation to the costs accumulated in the activity cost pool.

Front 19

What is a cost driver?

Back 19

Whatever causes the costs.

Front 20

What is the third step in ABC?

Back 20

Compute the overhead rate for each cost driver.

(cost in dollars/ cost driver measure)

Front 21

What is the fourth step in ABC?

Back 21

Assigne manufacturing overhead costs from each activity cost pool to the products or services.

Front 22

overhead cost in dollars=

Back 22

overhead rate X usage number (or hours)

Front 23

What is the primary benefit of ABC?

Back 23

More accurate product costing.

Front 24

ABC leads to more....

Back 24

cost pools, enhanced control over overhead costs, and better management decisions.

Front 25

A company that uses ABC incurs....

Back 25

higher analysis and measurement costs than under traditonal systems.

Front 26

What is Activity based management?

Back 26

Extends the use of ABC from product costing to a comprehensive management tool that focuses on reducing cost and improving processes and decision making.

Front 27

What is benchmarking?

Back 27

Comparison with other companies.

Front 28

What is value added?

Back 28

Activities increase the worth of the product or service as perceived by the customer.

Front 29

What is non value added?

Back 29

activities are production or service related activities that simply add cost to, or increase the time spent on, a product or service without increasing its market value.

Front 30

What is delivery cycle time?

Back 30

wait time+ process cost+ inspection time+ move time+ queue time.

Front 31

Unit level activities

Back 31

performed each time a unit is produced

Front 32

Batch level activites

Back 32

performed each time a batch is handled or processed, regardless of how many units are in a batch.

Front 33

Product level activites

Back 33

performed in support of an entire product line but not always performed every time a new unit or batch of products are produced.

Front 34

Facility level activites

Back 34

activites required to support or sustain the entire organization.

Front 35

What happens under JIT processing?

Back 35

raw materials are recieved just in time for use in production, subassembly parts are completed just in time for assembly into finished goods, and finished goods are completed just in time to be sold.

Front 36

What is a push through system?

Back 36

the traditional approach, products are manufactured and stored in anticipation of customers orders.

Front 37

What is a pull approach?

Back 37

A customer order triggers the purchase of materials and the scheduling of production.

Front 38

What are the benefits of JIT processing?

Back 38

*reduction of funds tied up in inventories
*less storage space needed
*enhancement of product quality
*improved flow of goods and associated cost savings.