question

Product cost distortions can be damaging, particularly for those firms whose business environment is characterized by:

answer

Continuous improvement, small profit margins, increasing competitive pressures, TQM, total customer satisfaction, sophisticated technology, and intense worldwide competition

question

Two major factors impair the ability of unit-based plant-wide and departmental rates to assign overhead costs accurately:

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The proportion of nonunit-related overhead costs to total overhead costs is large; the degree of product diversity is great

question

The use of either plantwide rates or departmental rates assumes that a product's consumption of overhead resources is ___________________.

answer

strictly to the units produced

question

If there are nonunit-level activities, the costs associated with these nonunit-level activities are likely to vary with __________________.

answer

units produced

question

Varies with output volume (units); traditional variable costs.

answer

Unit-level

question

Varies with the number of batches produced.

answer

Batch-level

question

Varies with the number of product lines.

answer

Product-sustaining

question

Necessary to operate the plant facility, but does not vary with units, batches, or product lines.

answer

Facility-sustaining

question

(batch, product-sustaining, and facility-sustaining); Factors that measure the consumption of nonunit-level activities by products and other cost objects.

answer

Nonunit-level activity drivers

question

Measure the consumption of unit-level activities.

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Unit-level activity drivers

question

Factors that measure the consumption of activities by products and other cost objects and can be classified as either unit-level or nonunit-level.

answer

Activity drivers

question

Using only unit-based activity drivers to assign nonunit-related overhead costs can create _______________.

answer

distorted product costs

question

If nonunit-based overhead costs are only a small percentage of total overhead costs, then the distortion of product costs will be ____________.

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very small; in such a case, using unit-based activity drivers to assign overhead costs is acceptable

question

Products consume overhead activities in systematically different proportions.

answer

Product diversity

question

Product diversity may occur because of differences in:

answer

product size, product complexity, setup time, size of batches

question

The proportion of each activity consumed by a product.

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Consumption ratio

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Consumption ratio=

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amount of activity driver per product/ total driver quantity

question

Overhead rate=

answer

total overhead costs/ total direct labor hours

question

Reveals that functional-based costing undercosts the low volume deluxe models and overcosts the high volume regular models; promises greater accuracy.

answer

Activity-based product costing

question

Functional-based overhead costing involves two major stages:

answer

overhead costs are assigned to an organizational unit; overhead cots are then assigned to cost objects

question

Indirect labor, depreciation, power, etc.

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Cost of overhead; resource drivers

question

Setup, moving, engineering change, etc.

answer

Activity driver

question

Products, customer, suppliers, territories, departments, etc.

answer

Objects

question

Action taken or work performed by equipment or people for other people.

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Activity

question

Identifying activities usually is accomplished by:

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Interviewing managers or representatives of functional departments

question

Lists the activities in organization along with some critical activity attributes (financial and nonfinancial information items that describe individual activities).

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Activity dictionary

question

Sorting, keying, and transactions verifying.

answer

Processing

question

Reviewing, printing, stuffing, and mailing.

answer

Preparing statements

question

Answering, logging, reviewing database, and making call backs.

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Answering questions

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Accessing accounts, withdrawing funds.

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Providing automatic tellers

question

Found in the general ledger:

answer

The cost of labor, energy, materials, and capital; money spent on each activity is not

question

Identifies the amount of labor consumed by each activity and is derived from the interview process.

answer

Work distribution matrix

question

Factors that measure the consumption of resources by activities.

answer

Resource drivers

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Assigned to products by multiplying a predetermined activity rate by the usage of the activity.

answer

Activity drivers

question

Originally became popular for their ability to improve product-costing accuracy by tracing activity costs to the products that consume the activities.

answer

ABC systems

question

ABC often is used to more accurately determine the:

answer

upstream costs of suppliers and the downstream costs of customers

question

Because of diversity of customers, _______________ drivers are needed to trace costs accurately.

answer

multiple

question

ABC customer cost=

answer

(add large and small customer costs allocated/ add large and small customer #) multiply by each #; then add together

question

ABC supplier cost=

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(activity cost/units added together from each column) multiply by each #; add together; divide by units

question

A system-wide, integrated approach that focuses management's attention on activities with the objective of improving customer value and profit achieved by providing this value.

answer

Activity-based management

question

Focuses on cost reduction instead of cost assignment and emphasizes the maximization of system-wide performance.

answer

Process value analysis

question

The resources consumed by the activity in producing its output.

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Activity inputs

question

The result or product of an activity.

answer

Activity output

question

The number of times the activity is performed; the quantifiable measure of the output.

answer

Activity output measure

question

The effort expended to identify those factors that are the root causes of activity costs.

answer

Driver analysis

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The hear of process-value analysis; the process of identifying, describing, and evaluating the activities that an organization performs.

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Activity analysis

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Activities necessary to remain in business.

answer

Value-added activities

question

Classified as value-added as long as it simultaneously satisfies: the activity produces a change of state, the change of state was not achievable by preceding activities, the activity enables other activities to be performed.

answer

Discretionary activity

question

All activities other than those that are absolutely essential to remain in business, and therefore considered unnecessary.

answer

Nonvalue-added activities

question

In the manufacturing operation these activities are often cited as wasteful and unnecessary.

answer

Scheduling, moving, waiting, inspecting, storing

question

An activity that uses time and resources to determine when different products have access to processes.

answer

Scheduling

question

An activity that uses time and resources to move raw materials, work in process, and finished goods from one department to another.

answer

Moving

question

An activity in which raw materials or work in process use time and resources by waiting on the next process.

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Waiting

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An activity in which time and resources are spent ensuring that the product meets specifications.

answer

Inspecting

question

An activity that uses time and resources while a good r raw material is held in inventory.

answer

Storing

question

Focuses on nonvalue-added activities.

answer

Activity elimination

question

Involves choosing among different sets of activities that are caused by competing strategies.

answer

Activity selection

question

Decreases the time and resources required by an activity.

answer

Activity reduction

question

Increases the efficiency of necessary activities by using economies of scale.

answer

Activity sharing

question

Activity management reduces costs in four ways:

answer

Elimination, selection, reduction, and sharing

question

Nonvalue-added cost=

answer

(actual quantity- value-added quantity) X cost per purchase order

question

Measures of activity performance center on 3 major dimensions:

answer

Efficiency, time, and quality

question

The relationship of activity inputs to activity outputs.

answer

Efficiency

question

Time required to perform an activity.

answer

Time

question

Doing the activity right the first time it is performed.

answer

Quality

question

Two operational measures of time-based performance:

answer

Cycle time and velocity

question

Measures how long it takes to produce an output from start to finish; length of time that it takes to produce a unit of output from the time raw materials are received until the good is delivered to finished goods inventory.

answer

Cycle time

question

The number of units of output that can be produced in a given period of time; reciprocal of cycle time.

answer

Velocity

question

Cycle time=

answer

time/ units produced

question

Velocity=

answer

units produced/ time

question

Quality improvement can increase profitability in two ways:

answer

increasing customer demand and thus sales revenues; decreasing costs

question

The costs of performing quality-linked activities (performed because poor quality may or does exist).

answer

Costs of quality

question

Four categories of quality costs:

answer

Prevention, appraisal, internal failure, and external failure costs

question

Two sub-categories of quality-related activities:

answer

Control activities and failure activities

question

Performed by an organization to prevent or detect poor quality.

answer

Control activities

question

The costs of performing control activities.

answer

Control costs

question

Control activities are made up of:

answer

Prevention and appraisal activities

question

Incurred to prevent poor quality in the products or services being produced.

answer

Prevention costs

question

Incurred to determine whether products and services are conforming to their requirements or customer needs.

answer

Appraisal costs

question

Performed by an organization or its customers in response to poor quality (poor quality does exist).

answer

Failure activities

question

The costs incurred by an organization because failure activities are performed.

answer

Failure costs

question

Incurred when products and services do not conform to specifications or customer needs before being shipped.

answer

Internal failure costs

question

Incurred when products and services fail to conform to requirements or satisfy customer needs after being delivered to customers.

answer

External failure costs

question

For many organizations, management of __________________ is becoming a matter of high priority and a significant competitive issue.

answer

environmental costs

question

Associated with the creation, detection, remediation, and prevention of environmental degradation; classified into same four categories as quality costs.

answer

Environmental costs

question

Which of the following is a non unit-level driver?

answer

Setup hours

question

The first stage of ABC entails the assignment of:

answer

resource costs to individual activities

question

Which of the following is a true statement about activity-based customer costing?

answer

Customer diversity requires multiple driver to trace costs accurately to customers.

question

The second stage of ABC entails the assignment of:

answer

activity costs to products or customers

question

Interview questions are asked to determine:

answer

what activities are being performed, who performs the activities, the relative amount of time spent on each activity by individual workers

question

Which of the following is a true statement about activity-based supplier costing?

answer

Suppliers can affect many internal activities of a firm and significantly increase the cost of purchasing

question

A forklift and its driver used for moving materials are examples of:

answer

activity inputs

question

Which of the following are nonvalue-added activities?

answer

Moving goods, storing goods, inspecting finished goods, reworking a defective product

question

The cost of inspecting incoming parts is most likely to be reduced by:

answer

Activity elimination

question

Striving to produce the same activity output with lower costs for the input used is concerned with which of the following dimensions of activity performance?

answer

Efficiency

question

Which of the following is a quantity prevention cost?

answer

Quality planning, supplier evaluation and selection, quality audits, and field trials

question

Which of the following is an appraisal cost?

answer

Manager of an inspection team

question

Which of the following is an internal failure cost?

answer

Retesting

question

Which of the following is an external failure cost?

answer

Lost sales

ACCT 2301- CHP 7 – Flashcards

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