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Questions and Answers

In activity-based costing, what is an activity measure?

A measure of the amount of time needed for an activity

A cost bucket in which costs related to a single activity measure are accumulated

An event that causes the consumption of overhead resources

A simple count of the number of times an activity occurs (correct)

What is a characteristic of a successful ABC implementation according to the text?

Use of transaction drivers as the primary activity measure

Exclusive reliance on allocation bases driven by the volume of production

Strong top management support (correct)

Absence of cross-functional teams

In traditional cost systems, what are allocation bases typically driven by?

Direct labor hours and/or machine hours (correct)

The volume of production

The number of customer orders

The amount of time needed for an activity

What is the purpose of defining activities, activity cost pools, and activity measures in ABC?

To assign all costs of resources consumed by taking and processing customer orders Signup and view all the answers

What are the two common types of activity measures mentioned in the text?

Transaction driver and duration driver Signup and view all the answers

What is the primary purpose of assigning costs to cost pools using a first-stage allocation?

To allocate all costs of resources consumed by specific activities Signup and view all the answers

What approach is employed when a company creates overhead rates based on the activities it performs?

Activity-based costing approach Signup and view all the answers

What is the appeal of using predetermined departmental overhead rates?

Enhancing management planning and decision making Signup and view all the answers

What is the selling price of Job 407 assuming a 75% markup?

$x imes 1.75$ Signup and view all the answers

What do job-order costing systems oen create for external parties?

Balance sheet and income statement Signup and view all the answers

What do managers use activity-based costing systems to more accurately measure?

The demands that jobs, products, and customers make on overhead resources Signup and view all the answers

What do predetermined departmental overhead rates presumably provide?

Accurate accounting of the costs caused by jobs Signup and view all the answers

Which costing method includes only variable costs in product costs?

Variable costing Signup and view all the answers

What is considered a product cost in absorption costing but not in variable costing?

Fixed manufacturing overhead Signup and view all the answers

How does the treatment of fixed manufacturing overhead differ between variable and absorption costing?

It is included in product costs in absorption costing but not in variable costing Signup and view all the answers

What does unit product cost under absorption costing include that unit product cost under variable costing does not?

Fixed manufacturing overhead Signup and view all the answers

How are income statements prepared in variable and absorption costing used?

To compute net operating income Signup and view all the answers

What is involved in reconciling variable and absorption costing net operating incomes?

Adding fixed manufacturing overhead deferred in inventory to variable costing net operating income Signup and view all the answers

What is the impact of underapplied or overapplied overhead on financial statements?

It impacts cost of goods sold and net operating income Signup and view all the answers

How is overhead applied to jobs in job-order costing?

Overhead is applied based on the predetermined allocation rate multiplied by the allocation base (actual) Signup and view all the answers

What is the purpose of the predetermined overhead rate in job-order costing?

To account for the lack of synchronization between accruing manufacturing overhead and job production Signup and view all the answers

How does variable costing differ from absorption costing?

Variable costing uses only variable costs to compute the cost of the product, while absorption costing includes both fixed and variable components Signup and view all the answers

What is the allocation base used in actual costing approach?

The actual number of units produced Signup and view all the answers

What is the focus of variable costing and absorption costing in terms of cost classification?

Variable costing is related to the classification of costs as variable or fixed, while absorption costing includes both fixed and variable costs in product costing Signup and view all the answers

What is the key difference between absorption costing and variable costing?

Absorption costing distorts fixed manufacturing overhead, while variable costing accurately identifies additional variable costs per unit. Signup and view all the answers

What is the purpose of segment margin in managerial accounting?

To gauge the long-run profitability of a segment by subtracting traceable fixed costs from contribution margin. Signup and view all the answers

Why does segment reporting at Webber, Inc. use the contribution format and not allocate common costs to divisions?

To avoid distorting decision-making by allocating common costs to segments. Signup and view all the answers

How does Activity-Based Costing (ABC) differ from traditional cost accounting?

ABC uses numerous overhead cost pools and a more complex allocation scheme, while traditional cost accounting does not. Signup and view all the answers

What are traceable fixed costs in managerial accounting?

Costs that arise due to the existence of a particular segment and would disappear if the segment itself disappeared. Signup and view all the answers

What does decentralized decision-making involve in managerial accounting?

Segmenting the overall activity into smaller segments and providing information by unit and segment. Signup and view all the answers

Study Notes

Managerial Accounting and Decision Making

Absorption costing distorts the fixed manufacturing overhead, making it difficult to perform break-even and cost-volume-profit analysis.
Variable costing accurately identifies additional variable costs per unit and emphasizes the impact of total fixed costs on profits.
Decentralization involves segmenting the overall activity into smaller segments, and managerial accounting provides information by unit and segment.
Segmented income statements use a contribution format to separate fixed from variable costs and calculate segment margin.
Traceable fixed costs arise due to the existence of a particular segment and would disappear if the segment itself disappeared, while common fixed costs arise from the overall operation of the company and would not disappear if any particular segment were eliminated.
The segment margin, computed by subtracting traceable fixed costs from contribution margin, is a key gauge of the long-run profitability of a segment.
Common costs should not be allocated to segments, as it distorts decision-making.
Segment reporting at Webber, Inc. uses the contribution format, listing fixed and variable costs separately, and does not allocate common costs to divisions.
Activity-Based Costing (ABC) is a method designed to provide managers with cost information for strategic decisions affecting capacity and variable costs.
ABC assigns nonmanufacturing and manufacturing costs to products on a cause-and-effect basis and can exclude certain costs from product costs.
ABC differs from traditional cost accounting by using numerous overhead cost pools and a more complex allocation scheme.
ABC addresses the complexity and product differentiation in addition to volume, unlike traditional cost systems.

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Description

Test your knowledge of managerial accounting and decision-making with this quiz. Explore concepts such as absorption costing, variable costing, decentralization, segmented income statements, traceable and common fixed costs, segment margin, segment reporting, and Activity-Based Costing (ABC). Sharpen your understanding of how these principles impact strategic decision-making and profitability analysis.