Activity based costing

Activity-based costing:

• Uses a plant-wide overhead rate to assign overhead

• Is not expensive to implement

• Typically applies overhead costs using direct labor-hours

• Uses multiple activity rates

Product design is an example of which activity-level group?

• Product-level activity

• Facility-level activity

• Batch-level activity

• Unit-level activity

Inspections are an example of which activity-level group?

• Unit-level activity

• Batch-level activity

• Product-level activity

• Facility-level activity

Which of the following characteristics would be an indicator that a company would benefit from switching to activity-based costing?

• Only one homogenous product is produced on a continuous basis

• The existing cost system is reliable and predictable

• Overhead costs are high and increasing with no apparent reason

• The costs of implementing ABC outweigh the benefits

Dividing costs of the department into activity cost pools is known as:

• Second-stage allocation

• First-stage allocation

• No allocation stage

• Full allocation

In activity based costing, a cost driver is:

• an overhead cost

• a direct product cost

• a resource consuming activity that causes overheads

• a variable cost

Property taxes and insurance are which category of cost?

• Unit-level.

• Product-level.

• Facility-level.

• Batch-level.

An activity-based costing system is one that:

• traces costs to activities and then to products.

• traces costs to resources and then to activities.

• traces activities to costs and then to resources.

• traces products to activities and then to resources.

Under ABC an event that causes the consumption of overhead resources in an organization called

• Activity Cost pooling

• Activity

• Overhead

• Allocation

What is not correct about ABC:

• Less accurate

• Difficult to implement

• Time consuming

• Massive amount of data