Activity-based Costing

Arrange the steps in ABC costing:

a) selecting the appropriate cost driver for each activity

b) compute ABC OH rate, and OH cost for each activity

c) assigning a cost to the cost centre

d) identify activities

Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?

• Machine-hours

• Direct labor-hours

• Number of orders processed

• Cost of materials purchased

Genius Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the costs of inspecting the finished products at Genius?

• Number of inspections

• Machine-hours

• Direct labour hours

• Inspection time

The labour time required to assemble a product is an example of a:

• Unit-level activity

• Batch-level activity

• Product-level activity

• Organization-sustaining activity

Production order processing is an example of a:

• Unit-level activity

• Batch-level activity

• Product-level activity

• Organization-sustaining activity

Designing a new product is an example of a:

• Unit-level activity

• Batch-level activity

• Product-level activity

• Organization-sustaining activity

The plant manager's salary is an example of a:

• Unit-level activity

• Batch-level activity

• Product-level activity

• Organization-sustaining activity

A transaction driver provides a simple count of the number of times that an activity occurs.

• True

• False

In activity-based costing, all manufacturing costs must be included in product costs.

• True

• False

Activity-based costing may supplement, rather than replace, a company's formal cost accounting system.

• True

• False