Preview

Chapter 04

Good Essays
Open Document
Open Document
16473 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Chapter 04
1. Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.
a. True
b. False

ANSWER: True

2. Management information systems can be divided into a unit-based type and activity-based type.
a. True
b. False

ANSWER: True

3. Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.
a. True
b. False

ANSWER: False

4. Unit-level drivers are factors that measure the demands placed on unit-level activities by products.
a. True
b. False

ANSWER: True

5. If applied overhead is greater than actual overhead it is called overapplied overhead.
a. True
b. False

ANSWER: True

6. Unit-based product costing assigns manufacturing and selling costs to products.
a. True
b. False

ANSWER: False

7. The difference between actual overhead and applied overhead is an underapplied overhead.
a. True
b. False

ANSWER: False

8. Overhead assignments should reflect the amount of overhead demanded by each product.
a. True
b. False

ANSWER: True

9. The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.
a. True
b. False

ANSWER: False

10. Non-unit-based drivers are factors that measure the demands that cost objects place on activities.
a. True
b. False

ANSWER: True

11. If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.
a. True
b. False

ANSWER: False

12. Activity-based costing uses only unit-level drivers for costing.
a. True
b. False

ANSWER: False

13. The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.
a. True
b. False

ANSWER: True

14. An activity-based costing system traces costs to activities and then to products and other cost objects.
a.
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Powerful Essays

    JET2 Financial Analysis Task 4 WGU
    • 1900 Words
    • 7 Pages

    JET2 Financial Analysis Task 4 WGU

    Activity Based Costing Method (ABC). ABC determines and allocates cost by activities a company executes. This generally happens in four steps: identify each activity and its associated costs, both total and indirect; estimated cost driver and quantity; allocation computation; and cost allocation to the respective activity. ABC refines the way indirect costs are allocated to production and focuses on the costs of each individual activity. Costs are also further assigned to each product within the activities and each activity has its own cost driver. Because of the specificity, active based costing provides a…

    • 1900 Words
    • 7 Pages
    Powerful Essays
    Read More
  • Good Essays

    Michigan Auto Parts
    • 963 Words
    • 4 Pages

    Michigan Auto Parts

    b) Also the high volume products but less significant products will be over-priced if we use direct method of allocation overheads.…

    • 963 Words
    • 4 Pages
    Good Essays
    Read More
  • Better Essays

    Jet2 Task 4
    • 2238 Words
    • 9 Pages

    Jet2 Task 4

    The main difference between activity based costing and the traditional system is that activity based costing requires four steps to build its cost point. Traditional costing uses one rate where first, activity based costing must identify each activity and estimate its total and indirect cost. Second for activity based costing is that the cost driver for each activity must be estimated along with the total quantity of each driver’s allocation base. Third the cost allocation for each activity must be computed. Fourth costs to cost object are allocated. Activity-based costing focuses on activities. The costs of those activities become the building blocks for measuring (allocating) the costs of products and services. (Horngren, Harrison, Jr & Oliver, 2008) This method of costing does require more time to compute the cost to the activity yet it earns that money back plus dividends by having a more accurate forecast of the true costs that are associated with each activity.…

    • 2238 Words
    • 9 Pages
    Better Essays
    Read More
  • Good Essays

    Case 5A
    • 1200 Words
    • 5 Pages

    Case 5A

    Next, management must identify the big overhead cost in order to determine whether or not they want to allocate some or a bunch of overhead using the activity-based costing system. I suggest that Glaser creates an activity-based costing system that allocates, with a minimal amount of effort, a large portion of their overhead. For instance, management is correct in…

    • 1200 Words
    • 5 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    AC202 Ch17
    • 273 Words
    • 2 Pages

    AC202 Ch17

    The traditional costing system of assigning overhead cost is only an estimated number used from values/information gathered from the prior year(s). Using the activity-based costing system in addition to the estimated number, the formula also puts into account any cost drivers that may drive up (or down) the cost. The overhead cost using this method is related to an activity.…

    • 273 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Acc349 Reflection Summary
    • 297 Words
    • 2 Pages

    Acc349 Reflection Summary

    One advantage of Activity-Based Costing system is it has more accurate overhead cost allocation because there are more cost pools, the costs in each pool are more similar, and allocation is based on activities that cause overhead costs. It is more effective overhead cost control by focusing on processes or activities and focuses on relevant factors by assigning costs to any cost object that is of interest to management. Lastly, it allows better management of activities by helping managers identify the causes of costs and the activities driving them. The disadvantages of Activity-Based Costing are its cost to implement and maintain ABC requires management commitment and financial resources and its uncertainty with decisions remain and management must interpret ABC data with caution in making managerial decisions.…

    • 297 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    Auerbach Enterprises Manufacturers
    • 1173 Words
    • 5 Pages

    Auerbach Enterprises Manufacturers

    choose the most appropriate and effective overhead rate, particularly, because it guides management in its tasks of product pricing, job costing, and budgeting. Businesses can use the single company-wide method or can opt for the departmental method. Auerbach Enterprises manufactures air conditioners for many makes of both automobiles and trucks. The two main products are MaxiFlow and Alaska. Currently, the company uses a company-wide predetermined overhead (OH) rate but is considering using departmental OH rates in the upcoming year. Company-wide OH rates allocate expenses across the entire enterprise. This rate is figured by dividing the total cost of overhead by cost drivers common throughout each department. According to Schneider (2012), “Department OH rates are calculated for each separate department by dividing the total department overhead budgeted by the budgeted amount of common cost drivers within the department” (p. 3.3). Moreover, Auerbach Enterprises is trying to make a determination as to whether it would be more appropriate to use the company-wide predetermined overhead rates, or whether it would be more appropriate to switch to using departmental overhead rates. As such, this paper will be making calculations to determine the most appropriate overhead costing rate method; according to Brunton (1998):…

    • 1173 Words
    • 5 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Accounting 3230
    • 570 Words
    • 3 Pages

    Accounting 3230

    A) is increased by allocated manufacturing overhead B) is credited with amounts transferred to Work-in-Process…

    • 570 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Managerial Accounting Case Study
    • 712 Words
    • 3 Pages

    Managerial Accounting Case Study

    4. What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?…

    • 712 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Managerial Accounting
    • 779 Words
    • 3 Pages

    Managerial Accounting

    Activity-based costing involves two allocation stages and includes a multitude of cost drivers. The first stage known as ABC assigns costs to pools; which signify the activities of the costs to be incurred. During the second stage the cost pools are allocated to products or cost objects by utilizing cost drivers that measure the object’s use of that activity.…

    • 779 Words
    • 3 Pages
    Good Essays
    Read More
  • Powerful Essays

    ACTIVITY-BASED COSTING MODEL
    • 2327 Words
    • 9 Pages

    ACTIVITY-BASED COSTING MODEL

    Activity based costing (ABC) is an accounting method that identifies the activities a firm performs creating the real cause of the overhead, and then assigns the indirect costs of those activity only to the products that are actually demanding the activities. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.…

    • 2327 Words
    • 9 Pages
    Powerful Essays
    Read More
  • Better Essays

    Managerial Accounting Question Paper
    • 2818 Words
    • 12 Pages

    Managerial Accounting Question Paper

    Why may departmental overhead rates NOT correctly assign overhead costs? A) Because of the potential use of machine hours in allocating overhead costs to products rather than direct labour hours or direct labour cost. B) Because of the high correlation between direct labour hours and the incurrence of overhead costs. C) Because of the over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, batch size, or complexity of production. D) Because of the difficulties associated with identifying cost pools for the first stage of the allocation process.…

    • 2818 Words
    • 12 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    accounting quiz
    • 715 Words
    • 9 Pages

    accounting quiz

    Salvadore Inc., a local retailer, has provided the following data for the month of September:…

    • 715 Words
    • 9 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Cost Acc
    • 527 Words
    • 3 Pages

    Cost Acc

    9-4 It will require more work. Significant amounts of indirect costs are allocated using only one or two cost pools. All or most costs are identified as output unit-level costs. Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity. Products that a company is well suited to make and sell show small profits while products for which a company is less suited show large profits.…

    • 527 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    BUS 475 Sample Final Exam
    • 4935 Words
    • 20 Pages

    BUS 475 Sample Final Exam

    Jaime Inc. manufactures 2 products, sweaters and jackets. The company has estimated its overhead in the order-processing department to be $180,000. The company produces 50,000 sweaters and 80,000 jackets each year. Sweater production requires 25,000 machine hours, jacket production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for sweaters and the remainder for raw materials for jackets. How much of the order-processing overhead should be allocated to jackets?…

    • 4935 Words
    • 20 Pages
    Good Essays
    Read More

Related Topics