5 - Activity Based Costing Flashcards _ Quizlet

10/26/2015 5 Activity Based Costing flashcards | Quizlet

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5 - Activity Based Costing 35 terms by dbdmcdermott

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Peanut Butter Costing A particular costing approach that usesbroad averages for assigning the costof resources uniformly to cost objectswhen the individual products orservices , may in fact, use thoseresources in nonuniform ways

Product Undercosting a product consumes a high level ofresources but is reported to have a lowcost/unit

Product Overcosting A product consumes a low level ofresources but is reported to have ahigh cost/unit

Product Cost Cross Subsidization costing outcome where oneundercosted (overcosted) productresults in at least one other productbeing overcosted (undercosted)

Refined Costing System reduces the use of broad averages forassigning the cost of resources to costobjects

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Direct Cost Tracing Identify as many DC as economicallyfeasible - reduce costs that can beclassified as ID, minimize amountallocated

Indirect Cost Pools expand the # of ID cost pools untilhomogenous - all costs have same orsimilar cause and effect relationship w/a single cost driver and used as costallocation base

Cost Allocation Base whenever possible, use the cost driver(cause of IDc's) as the cost allocationbase for each homo ID cost pool(effect)

Activity Based Costing refines a costing system by identifyingindividual activities as the fundamentalcost objects

Activity an event, task, or unit of work w/ aspecific purpose - things a firm does

Cost Hierarchy categorization of indirect costs intodifferent costs pools on the basis of thedifferent types of cost drivers, or cost-allocation bases, or different degrees ofdifficulty in determining cause andeffect relationships

Output Unit Level Costs the costs of activities performed oneach individual unit of a product orservice

Batch Level Costs the costs of activities related to a groupof units of a product or service ratherthan each individual unit of a productor service

Product (Service) Sustaining Costs Costs o activities undertaken tosupport individual products/servicesregardless of the # of units or batchesin which the units are produced

Ex: Design/R&D costs Product (Service) sustaining Costs



Facility Sustaining Costs costs of activities that cannot be tracedto individual products/services but thatsupport the organization as a whole

Ex: Administrative Costs Facility Sustaining Costs

Activity Based Management a method of management decisionmaking that uses ABC info to improvecost satisfaction & profitability

If products are different, then forcosting purposes:

an ABC costing system will yield moreaccurate cost numbers

Overcosting a particular product mayresult in

loss of market share

Undercosting of a product is most likelyto result from:

overcosting another product

A company produces three products; ifone product is overcosted then:

one or two products are undercosted

Misleading cost numbers are mostlikely the result of misallocating:

indirect costs

An accelerated need for refined costsystems is due to:

intense competition

The use of a single indirect-cost rate ismore likely to:

undercost both low-volume complexproducts and undercost lower-pricedproducts

Refining a cost system includes: identifying the activities involved in aprocess

Greater indirect costs are associatedwith:

specialized engineering drawings;quality specifications and testing;inventoried materials and materialcontrol systems

Design of an ABC system requires: that a cause-and-effect relationshipexists between resource costs andindividual activities, AND an adjustmentto product mix

A single indirect-cost rate may distortproduct costs because:

there is an assumption that all supportactivities affect all products



Traditional cost systems distort productcosts because:

they apply average support costs toeach unit of product

Activity-based costing (ABC) caneliminate cost distortions because ABC:

develops cost drivers that have acause-and-effect relationship with theactivities performed

Product lines that produce differentvariations (models, styles, or colors)often require specializedmanufacturing activities that translateinto:

greater overhead costs for eachproduct line

Design costs are an example of: product-sustaining costs

Unit-level cost drivers are mostappropriate as an overheadassignment base when:

only one product is manufactured

ABC assumes all costs are ________because over the long runmanagement can adjust the amount ofresources employed.

variable

5 - Activity Based Costing Flashcards _ Quizlet

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