Exam 4: Cost Management Systems and Activity-Based Costing

A cost management system is the set of procedures used by managers to control costs.

Last year Zephyr Company sold 9,000 units that cost $40,000 to produce. This cost included $3,000 in fixed computer resource cost, $10,000 in fixed labor cost, and communications resource cost at $3.00 per unit. Resource costs are expected to be the same next year. Zephyr expected to sell 18,000 units. The sales manager predicts that next year's cost will be $80,000. Required: Comment on the sales manager's cost prediction.

Product costs first become part of the inventory on hand.

Accountants can specifically and exclusively identify indirect costs with a given cost objective in an economically feasible way.

Direct labor costs plus factory overhead costs

Where a specific product is the cost object, the wages of a security guard would probably be classified as a(n):

Direct labor costs plus direct materials costs

The contribution approach is a method of internal reporting that emphasizes the distinction between variable and fixed costs for the purpose of better decision making.

Indicate whether each of the following costs is an Inventoriable cost (I) or a Period cost (P): 1. depreciation on factory equipment 2. depreciation on treasurer's desk 3. direct materials 4. factory supplies 5. indirect labor 6. factory equipment repairs and maintenance 7. office supplies 8. advertising expense 9. depreciation on office equipment 10. direct labor 11. factory supervisor's salary 12. factory utilities 13. indirect materials 14. office salaries 15. sales commissions

The Rainbow Company manufactures paint in two processes: Mixing and Cooking. Total costs incurred in the mixing and cooking departments are as follows: Direct Materials Direct labor Mixing \ 60,000 \ 80,000 Cooking \ 25,000 \ 50,000 Indirect manufacturing costs were $90,000 for the Mixing department and $180,000 for the Cooking department. Rainbow Company manufactures two products, Superior Paint and Deluxe Paint. Costs are allocated to these products in the following proportions: Mixing Cooking DM DL DM DL Superior \% \% \% \% Deluxe \% \% \% \% Indirect cost is allocated in proportion to the direct labor costs with each department. The Mixing department cost allocated to Deluxe is:

The equation for cost of goods sold

Costs that cannot be identified specifically and exclusively with a given cost objective in an economically feasible way

Youngblood Corporation had the following activities, traceable costs, and physical flow of driver units: Traceable Physical Flow of Activities Costs DriverUnits Account inquiry (hours) \ 8,000 500 hours Account billing(lines) 5,600 200,000 lines Account verification (accounts) 6,000 2,000 accounts Correspondence (letters) 1,000 200 letters The above activities are used by departments A and B as follows: A B Account inquiry (hours) 50 hours 80 hours Account billing (lines) 25,000 lines 20,000 lines Account verification (accounts) 200 contracts 100 contracts Correspondence (letters) 20 letters 100 letters The cost per driver unit for the account verification activity is:

A schematic diagram capturing interrelationships among cost objects, activities, and resources

County Bank had the following activities, traceable costs, and physical flow of driver units: Traceable Physic al Flow of Activities Costs Driver Units Open new acc ounts \ 50,000 1,000 accounts Process deposits 36,000 400,000 deposits Process with draw als 15,000 200,000 withdrawals Process loan applications 27,000 900 applications The above activities are used by North County branch and South County branch: North South New accounts 200 400 Deposits 40,000 20,000 Withdrawals 15,000 18,000 Loan applications 100 160 The deposit cost assigned to the South County branch is:

Multistage ABC has resource cost drivers other than percentages.

Depreciation of assembly equipment is an example of a direct cost.

Identified with goods produced or purchased for resale

The system that first measures the resources used in performing the organization's activities and then assesses the effects on costs of changes in those activities

Traditional cost systems generally allocate only indirect production costs to the products.