Activity-Based Costing Terminology

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What is a cost object in Activity-Based Costing (ABC)?

A group of individual cost items with the same cause-effect relationship

An event that incurs cost

A factor that causes a change in the cost of an activity

An item for which cost measurement is required, like a product or customer (correct)

In ABC, what does an activity cost driver measure?

Frequency and intensity of demand placed on activities by cost objects (correct)

Change in the cost of an activity

Total overhead of each cost pool

Quantity of resources consumed by an activity

What is the purpose of dividing activities into cost pools in ABC?

To calculate the total overhead of each cost pool

To identify all the activities required to create the product

To measure the quantity of resources consumed by an activity

To include all individual costs related to an activity (correct)

Which of the following is NOT an example of a cost driver category in ABC?

Machine set-up Signup and view all the answers

What represents a group of various individual cost items with the same cause-effect relationship in ABC?

Cost Pool Signup and view all the answers

Why is Activity-Based Costing (ABC) mostly used in the manufacturing industry?

Because it enhances the reliability of cost data and better classifies costs incurred during production process Signup and view all the answers

What is the purpose of issuing a corporate brochure?

To provide information about the company Signup and view all the answers

What is the purpose of preparing a profit and loss statement and balance sheet?

To analyze the trial balance and prepare financial statements Signup and view all the answers

What is the purpose of raising funds through methods like PPD, preference shares, and fixed deposits?

To park surplus funds and calculate interest Signup and view all the answers

What is the purpose of advertising and analyzing feedback from sales?

To prepare MIS and sales projections Signup and view all the answers

What is the purpose of dealing with auditors and banks for working capital and term loans?

To analyze the trial balance and prepare financial statements Signup and view all the answers

What is the purpose of issuing share certificates and dealing with grievances?

To issue share certificates, handle grievances, and manage PF and government accounts Signup and view all the answers

What can be more effectively controlled using the ABC approach?

Marketing and servicing costs Signup and view all the answers

In an ABC environment, what initial work is required by team members?

Identifying activities and their present costs Signup and view all the answers

What is the first step in creating a cost code in activity-based costing?

Identify activities Signup and view all the answers

What is a common extreme cost reduction measure for firms facing financial challenges?

Layoffs Signup and view all the answers

What should be included in the list of resources for each activity?

Material, equipment, labor hours, and subcontracting costs if applicable Signup and view all the answers

How is the cost driver rate calculated?

Divide the total overhead by the total cost drivers Signup and view all the answers

Which philosophy focuses on continuous improvement and serves as a good starting point in an ABC environment?

Total Quality Management (TQM) Signup and view all the answers

What is the purpose of calculating the cost driver rate?

To allocate overhead costs to products or services Signup and view all the answers

In what scenario would firms need to consider measures like divestitures?

When financial results are unacceptable to shareholders Signup and view all the answers

In the example given, what is the cost driver used for the electricity bill?

Labor hours Signup and view all the answers

What type of costs are highlighted as gaining importance in comparison to manufacturing costs?

Non-manufacturing costs Signup and view all the answers

What is the next step after calculating the per-unit cost of each resource?

The process is complete after this step Signup and view all the answers

What is the primary focus of Activity-Based Costing (ABC)?

Activity costs Signup and view all the answers

Which of the following is NOT listed as a function under the allocation of power, water, steam to various activities?

Data feeding & printing Signup and view all the answers

Which activity involves spending time meeting with overseas suppliers and buyers?

Holding meetings with overseas Supplier and buyer Signup and view all the answers