Exam 8: Activity-Based Management and Activity-Based Costing

Management accountants might initially have developed costing systems primarily or entirely to estimate the cost of inventory for ________ purposes.

For what four purposes might a company choose to allocate corporate costs to various divisions within the company? Give an example of each. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Identifying homogeneous cost pools:

Although managers are able to achieve a great deal through ABM without resorting to sophisticated costing systems,there is a point at which they might need more fine-grained information to progress further,information that ABC is capable of providing.

Different products consume different proportions of production overhead costs because of differences in all of the following EXCEPT:

Managers are able to achieve a great deal through ________ without resorting to sophisticated costing systems.

Answer the following questions using the information below: Dandenong Enterprises has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year: Cost Pool Overhead Costs Cost Driver Activity level Supervision of direct labour \ 320000 Direct labour-hours 800000 Machine maintenance \ 120000 Machine-hours 960000 Facility rent \ 200000 Square metres of area 100000 Total overhead costs \ 640000 The accounting records show the Leongatha job consumed the following resources: Cost Driver Actual Level Direct labour-hours 300 Machine-hours 2400 Square metres of area 75 -If direct labour-hours are considered the only overhead cost driver,what is the single cost driver rate for Dandenong Enterprises?

Answer the following questions using the information below: Products S5 and CP8 each are assigned $50.00 in indirect costs by a traditional costing system.An activity analysis revealed that although production requirements are identical,S5 requires 45 minutes less set-up time than CP8. -ABC systems are useful in manufacturing,but not in the merchandising or service industries.

Why might a single indirect-cost rate distort product costs?

Why do traditional cost systems distort product costs?

ABC systems always provide decision-making benefits that exceed implementation costs.

Costing systems with multiple cost pools are considered ABC systems.

For service organisations that bill customers at a predetermined average rate,activity-based cost systems can help to:

Management accountants express the acquired resources in dollar terms and identify the cost objects that consume these resources,either direct cost objects or the activities that are required to produce the outputs.

The UNIQUE feature of an ABC system is the emphasis on:

Managers do not use costing systems to inform them when making a variety of decisions.

The Marionettes Company is noted for an exceptionally impressive line of Mardi Gras masks.Marionettes has established the following selling and distribution support activity-cost pools and their corresponding activity drivers for the year 2018: Activity Cost Cost Driver Marketing \ 30000 \ 500 000 of sales Customer service 10000 5000 customer Order execution 5000 100 orders Warehousing 5000 50 product lines Required: a.Determine the activity-cost-driver rate for each of the four selling and distribution activities. b.Under what circumstances is it appropriate to use each of the activity-cost drivers? c.Describe at least one possible negative behavioural consequence for each of the four activity-cost drivers. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Katoomba Company provides the following ABC costing information: Activities Total Costs Activity-cost Drivers Account inquiry hours \ 800000 20000 hours Account billing lines \ 560000 8000 000 lines Account verification accounts \ 300000 80000 accounts Correspondence letters \ 100000 8000 letters Total costs \ 1760000 The above activities are uæed by Departments and as follows: Department A Department B Account inquiry hours 2000 hours 8000 hours Account billing lines 400 o00 lines 200000 lines Account verification accounts 20000 accounts 8000 accounts Correspondence letters 1000 letters 1600 letters -How much of the total costs will be assigned to Department A?

________ gives managers information about the costs of making and selling diverse outputs,rooted in activities.

Answer the following questions using the information below: Ghan Collectibles produces T-shirts and sweatshirts.Product profitability is analysed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60000 units 35000 urits Selling price \ 16.00 \ 29.00 Direct material \ 2.00 \ 5.00 Direct labour \ 4.50 \ 7.20 Manufacturing overhead \ 2.00 \ 3.00 Gross profit \ 7.50 \ 13.80 Selling and administrative \ 4.00 \ 7.00 Operating profit \ 3.50 \ 6.80 Ghan Collectibles's managers have decided to revise their current assignment of overhead costs to reflect the following $\mathrm { ABC }$ cost information: Activities demanded T-SHIRTS SWEATSHIRTS 0.75/ unit 1.2/ 45000 42000 60000 inspections 17500 inspections -Under the revised ABC system,the activity-cost driver rate for the supervision activity is: