Time-Driven Activity-Based Costing Quiz
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Questions and Answers

What is one potential action managers might take based on Time-Driven Activity-Based Costing (TDABC) analysis to improve operational efficiency?

  • Reduce time required for purchasing, scheduling production or setups (correct)
  • Increase setup times to improve product quality
  • Decrease prices on unprofitable products to drive sales volume
  • Eliminate all customer order minimum sizes

How should the cost of unused resource capacity be assigned using TDABC?

  • Allocated to customers based on their individual service consumption.
  • Assigned on a lump-sum basis to the department or decision that authorized the capacity. (correct)
  • Distributed equally across all production activities.
  • Apportioned to products based on their utilization rates.

What is a primary reason why a company may have allocated significant overhead resources without achieving sufficient revenue?

  • Managers failed to implement operational improvements.
  • The company did not utilize a TDABC system for tracking costs.
  • The company underpriced all products and services.
  • The incremental revenue from new products did not justify the investment. (correct)

What is an action a manager could take to improve profitability based on a TDABC analysis?

<p>Increase prices on unprofitable products or impose minimum order sizes. (A)</p> Signup and view all the answers

In the context of TDABC, what should happen to the cost of unused capacity?

<p>It should remain the responsibility of the department that made the decision impacting capacity. (A)</p> Signup and view all the answers

Which type of resource is best described as having costs that vary depending on production activity?

<p>Short-term capacity resources (A)</p> Signup and view all the answers

What is a key characteristic of intermediate-term capacity resources?

<p>Costs are fixed over a set period (C)</p> Signup and view all the answers

Which of the following is an example of a discretionary expenditure that enhances organizational strategy?

<p>Research and development (D)</p> Signup and view all the answers

A new chip fabrication plant is an example of which resource type?

<p>Long-term capacity resource (B)</p> Signup and view all the answers

What is the primary focus of operating budgets?

<p>Summarizing activity levels (C)</p> Signup and view all the answers

Which of these resources is considered to be a fixed cost?

<p>Rental storage space leased for a year (C)</p> Signup and view all the answers

Which type of resource does not vary with changes in organizational activity?

<p>Discretionary expenditures (D)</p> Signup and view all the answers

Which of the following is NOT a discretionary expenditure?

<p>Cost of purchasing new machinery (A)</p> Signup and view all the answers

When unused capacity costs are assigned, what is the primary purpose of assigning them as a lump sum to an organizational unit?

<p>To provide feedback to managers on their supply and demand decisions. (C)</p> Signup and view all the answers

If a company determines that a product line's demand is below expectations, where should the cost of the resultant unused capacity be assigned?

<p>To the specific product line where the demand did not materialize. (A)</p> Signup and view all the answers

When assigning unused capacity costs, at what organizational level should these costs ideally be traced?

<p>At the level where decisions influencing both supply and demand of the capacity resources are made. (C)</p> Signup and view all the answers

According to the context of activity-based costing (ABC), why are most expenses considered committed?

<p>Because managers have made decisions to supply the resources before knowing production volumes. (B)</p> Signup and view all the answers

During a specific month, why are resource costs typically considered fixed under an ABC system?

<p>Because they will remain constant even with fluctuations of production in real time. (C)</p> Signup and view all the answers

According to the ABC system, how can committed costs become variable?

<p>By changing either the quantity of activities performed or the efficiency of performing activities. (B)</p> Signup and view all the answers

Within the context of activity-based costing, if there is a change in the number of production runs, how does this affect committed costs?

<p>It causes a change in the demanded for resources, which may make committed costs variable. (D)</p> Signup and view all the answers

In the context of ABC, what is the effect if managers fail to react to changes in demand and capacity utilization?

<p>The assigned costs are more likely to become a fixed cost. (C)</p> Signup and view all the answers

What is the primary purpose of budgeting in an organization?

<p>To act as a control mechanism and a planning tool by setting spending limits. (B)</p> Signup and view all the answers

In the context of short-term decision making, what type of costs are generally considered most relevant?

<p>Variable costs because they are controllable in the short term. (A)</p> Signup and view all the answers

Which aspect of a business does the budgeting process primarily quantify?

<p>The expected money inflows and outflows aligned with strategic objectives. (D)</p> Signup and view all the answers

How does budgeting facilitate communication within a company?

<p>By conveying the organization's short-term goals to employees. (C)</p> Signup and view all the answers

What role does 'What-if' or simulation analysis play in the budgeting process?

<p>It helps managers evaluate consequences across various scenarios. (C)</p> Signup and view all the answers

How does budgeting aid in anticipating and handling potential financial problems?

<p>By highlighting potential borrowing needs based on the cash cycle. (C)</p> Signup and view all the answers

In budgeting, what is one way unit managers show an understanding of the organization's goals?

<p>By aligning their unit's activities and spending with those goals. (D)</p> Signup and view all the answers

Which of these options best illustrates how budgeting coordinates different activities in a business?

<p>It highlights the impact of sales levels on purchasing, production and staffing needs. (A)</p> Signup and view all the answers

Why is it important for an organization to understand their cash cycle when budgeting?

<p>To make sure there are enough funds to finance the inventory buildup and avoid cash shortages. (A)</p> Signup and view all the answers

What is the main role of budgeting in relation to an organizations short-term objectives?

<p>It helps in the allocation of financial resources based on the organizations planned activities and objectives. (D)</p> Signup and view all the answers

What is the primary focus of the budgeting process in service organizations?

<p>Balancing sales activities with staffing requirements based on the organization's skills (D)</p> Signup and view all the answers

What is the function of the market size variance?

<p>To evaluate the impact of changes in industry sales on contribution margin, given the company's planned market share (B)</p> Signup and view all the answers

Which budgeting approach is most closely associated with requiring justification for every expenditure?

<p>Zero-based budgeting (B)</p> Signup and view all the answers

Why is continuous budgeting considered more strategic than periodic budgeting?

<p>It encourages ongoing planning, assessment, and strategic thinking throughout the year (B)</p> Signup and view all the answers

What is a potential disadvantage of using incremental budgeting?

<p>It can lead to inefficient allocation of resources (C)</p> Signup and view all the answers

What is the key difference between project funding and zero-based budgeting?

<p>Project funding involves setting a budget for specific projects, while zero-based budgeting requires justification for every expenditure (B)</p> Signup and view all the answers

Which statement best describes the Beyond Budgeting Approach?

<p>It emphasizes a decentralized budgeting process with a focus on stretch goals (D)</p> Signup and view all the answers

What is the primary objective of budgeting in not-for-profit organizations?

<p>Balancing revenue generation from taxes or donations with expenditure demands (A)</p> Signup and view all the answers

Who typically plays a key role in coordinating the budgeting process within an organization?

<p>The organization's budget director (C)</p> Signup and view all the answers

What is a potential consequence of using a budget committee that is dominated by senior management?

<p>It can limit the participation and input of employees in the budgeting process (B)</p> Signup and view all the answers

Why is it important for organizations to assess their budgeting approaches regularly?

<p>To ensure that the budgeting process is aligned with the organization's current operating environment (B)</p> Signup and view all the answers

What is a key benefit of using a project funding approach to manage discretionary expenditures?

<p>It provides a clear framework for managing and evaluating specific initiatives (D)</p> Signup and view all the answers

Which of the following is NOT a characteristic of the Beyond Budgeting Approach?

<p>Focusing on short-term profitability (B)</p> Signup and view all the answers

How does the budget committee contribute to the overall budgeting process?

<p>It ensures that the budget is aligned with the organization's strategic goals (D)</p> Signup and view all the answers

Why is continuous budgeting often considered a more appropriate approach for organizations facing rapid changes in their operating environment?

<p>It allows for more frequent adjustments to the budget (C)</p> Signup and view all the answers

What is the primary goal of budgeting in manufacturing organizations?

<p>Managing the production process and aligning output with demand (B)</p> Signup and view all the answers

What is the primary difference between incremental budgeting and zero-based budgeting?

<p>Incremental budgeting uses past expenditures as a base, while zero-based budgeting starts from zero and requires justification for every expenditure (B)</p> Signup and view all the answers

Which of the following defines the sales price variance?

<p>The difference between the actual selling price per unit and the standard price (C)</p> Signup and view all the answers

What is the formula for calculating the quantity variance for direct materials?

<p>(AQ - SQ) x SP (A)</p> Signup and view all the answers

Which of the following represents fixed cost variance?

<p>Actual fixed costs minus planned fixed costs (C)</p> Signup and view all the answers

Which variances are included in third-level variance analysis?

<p>Quantity or efficiency and price or rate variances (A)</p> Signup and view all the answers

What is considered when calculating the variable overhead efficiency variance?

<p>The actual direct labor hours used compared to standard hours (D)</p> Signup and view all the answers

The total cost variance is the sum of which of the following?

<p>Direct material, direct labor, and variable overhead variances (D)</p> Signup and view all the answers

What do price or rate variances for direct materials compare?

<p>Actual price of materials to the estimated standard price (D)</p> Signup and view all the answers

The formula for calculating the sales price variance involves which of the following components?

<p>Actual number of units sold multiplied by the difference between actual and planned price (B)</p> Signup and view all the answers

In the context of flexible budgets, what does the planning variance represent?

<p>The difference between the static budget and the flexible budget incomes (D)</p> Signup and view all the answers

Flashcards

Unused Capacity Cost

The cost of resources that are available but not used. For example, if a company has a machine that can produce 100 units per hour but only produces 50 units per hour, the cost of the unused capacity is the cost of producing the other 50 units.

Activity-Based Costing (ABC)

A costing method that assigns costs to products or services based on the activities that are required to produce them.

Time-Driven Activity-Based Costing (TDABC)

A costing method similar to ABC, but it also considers the time required to perform activities.

Unused Capacity Cost in TDABC

The cost of unused capacity is not directly assigned to products or services in TDABC but is still a significant cost that needs to be considered.

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Assigning Unused Capacity Cost

In TDABC, unused capacity usually results from a management decision to invest in resources that are not fully utilized. Analyzing the decision that led to the unused capacity can help assign the cost to the responsible party.

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Assignment of Unused Capacity Costs

Assigning unused capacity costs to the specific individual or organizational unit responsible for the unmet demand, helping them understand their supply and demand decisions.

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Product Line Cost Allocation

Attributing unused capacity costs to a particular product line when the demand for that product falls short of expectations.

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Committed Costs

Costs that remain relatively fixed regardless of the production volume in the short term. These costs are committed in advance of knowing the precise production needs.

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Committed Costs as Variable

Committed costs can become variable if managers react to changes in demand and capacity utilization by adjusting resource levels in the future.

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Demand Changes and Committed Costs

Changes in the quantity or efficiency of activities performed can lead to adjustments in the demand for resources, making previously committed costs become variable.

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Committed Costs Variability Mechanism

A two-step process where committed costs are transformed into variable costs by adjusting resource levels based on changing demand and capacity utilization.

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Net Promoter Score (NPS)

The percentage of customers who are promoters, with scores of 9-10, minus the percentage of customers who are detractors, with scores of 1-6.

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Variable Costs

Costs that change in direct proportion to the level of activity in a business. For example, direct materials used in production.

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Fixed Costs

Costs that remain the same, regardless of the level of activity in a business. For example, rent on a factory.

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Budget

A financial plan that outlines the expected income, expenses, and cash flows of a business over a specific period. It's a quantitative tool for planning and controlling resources.

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Budgeting

The process of creating and managing budgets, including forecasting, planning, and monitoring.

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Simulation Analysis

The process of identifying potential problems or opportunities based on various scenarios or assumptions. It helps in making informed decisions by understanding the potential consequences of different choices.

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Cash Cycle

A financial cycle that begins with the purchase of inventory, continues through the production and sale of goods, and ends with the collection of cash from customers.

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Capacity

The ability of a business to produce goods or services. It refers to the maximum output that can be achieved with available resources.

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Resource Allocation

The allocation of resources to different parts of a business based on planned activities and objectives. It ensures that the organization's resources are used effectively to achieve its goals.

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Flexible Resources

Resources that can be quickly acquired or disposed of depending on short-term needs, like the materials used in a furniture factory.

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Intermediate-Term Capacity Resources

Resources that are acquired for a longer period, such as rental space, contracted for a quarter or a year.

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Discretionary Expenditures

Resources that contribute to the long-term potential of the organization, like research and development, training, and advertising. These are optional expenses that don't directly provide production capacity.

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Long-Term Capacity Resources

Long-term resources that provide production capacity and have a significant impact on the organization's overall capacity. Examples include buildings, equipment, and machinery.

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Operating Budgets

Budgets that focus on the operational aspects of a business, including sales, production, and purchasing.

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Master Budget

A comprehensive financial plan that combines all the operating budgets and financial budgets of an organization.

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Sales Price Variance

The difference between the actual selling price per unit and the planned selling price per unit, multiplied by the number of units sold.

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Fixed-Cost Variance

The difference between actual fixed costs and planned (budgeted) fixed costs.

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Direct Materials Quantity Variance

The difference between the actual quantity of materials used and the standard quantity allowed for production, multiplied by the standard price of materials.

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Direct Labor Efficiency Variance

The difference between the actual number of direct labor hours worked and the standard hours allowed for production, multiplied by the standard rate per hour.

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Direct Materials Price Variance

The difference between the actual price of materials and the standard price of materials, multiplied by the actual quantity of materials used.

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Direct Labor Rate Variance

The difference between the actual wage rate paid and the standard wage rate, multiplied by the actual number of hours worked.

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Total Flexible Budget Direct Labor Variance

The sum of the rate variance and the efficiency variance for direct labor.

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Variable Overhead Variance

A variance analyzing differences between actual variable overhead costs and planned variable overhead costs based on the cost driver (often direct labor hours).

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Total Cost Variance

The sum of all cost variances (DM, DL, VS, VOH, FC variances).

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Sales Volume Variance

The difference between the actual number of units sold and the planned number of units sold, multiplied by the standard contribution margin per unit.

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What is Market Size Variance?

Measures the impact on contribution margin when actual industry sales deviate from planned sales, considering the company's planned market share.

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What is Incremental Budgeting?

A budgeting method where each period's expenditure level is based on the previous period's spending.

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What is Zero-Based Budgeting (ZBB)?

A budgeting approach where every expenditure needs constant justification, starting from zero for each budget period.

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What is Project Funding?

A budgeting method where a specific time horizon or 'sunset' provision is set for discretionary expenditures.

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What is Beyond Budgeting Approach?

A budgeting approach that emphasizes stretch goals, performance benchmarks, and decentralized decision-making.

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What is Period Budgeting?

A budgeting method that is typically performed once per budget period, usually annually.

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What is Continuous Budgeting?

A budgeting approach where a new budget period is added as the previous one concludes, usually monthly or quarterly.

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What is the Main Purpose of Budgeting in Organizations?

The process of formally coordinating and communicating responsibilities and plans within an organization.

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What is the Focus of Budgeting in Not-for-Profit Organizations?

Balancing revenue generation with planned spending in government agencies.

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What is the Focus of Budgeting in Natural Resource Organizations?

Focuses on balancing demand with the availability of natural resources such as minerals, fish, or wood.

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What is the Focus of Budgeting in Service Organizations?

Focuses on balancing demand with the organization's ability to provide services based on available skills.

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What is the Focus of Budgeting in Manufacturing Organizations?

Focuses on balancing revenue generation with the organization's operational expenses.

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What is a Budget Team?

A team responsible for coordinating and managing the budgeting process within an organization.

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What is a Budget Committee?

A committee that oversees the budgeting process, typically composed of senior executives.

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What is the Common Assumption of Incremental Budgeting?

The assumption that all costs that varied proportionately with production in the past will continue to do so in the future.

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Study Notes

BU247 Final Notes (Managerial Accounting)

  • Course covers activity-based costing (ABC), customer profitability analysis, budgeting, and variance analysis.
  • Chapter 5 focuses on activity-based costing systems, assigning production costs to products and linking operating expenses to output.
  • Calculating product costs involves determining material and labor costs per unit.
  • Time-Driven Activity-Based Costing (TDABC) estimates resource cost rates and calculates resource capacity cost rates.
  • Activity-Based Costing (ABC) is adequate for companies with varied production volumes and batch sizes, eliminating product cost distortions.
  • Chapter 6 discusses customer profitability analysis, examining individual customer costs and profitability.
  • This analysis is beneficial for prioritizing customer retention and service strategies.
  • Chapter 11 focuses on using budgets for planning and coordination in organizations.
  • Budgets serve as control mechanisms and planning tools.
  • Budgeting is a quantitative expression of the organization’s financial plan.
  • Budget periods can be monthly, quarterly, or annually, depending on the organization’s needs and operations.
  • Budgeting involves forecasting resource needs over time.
  • Organizations may use variance analysis to compare actual results with planned results in a budget.
  • Variance analysis has types such as a flexible budget variance and a sales volume variance.
  • Variance analysis helps managers determine the reasons behind discrepancies to address and implement improvements.
  • Measuring customer profitability helps businesses identify which customers contribute most to overall profitability.
  • Customer profitability is affected by factors such as order customisation, small order sizes, order predictability, and delivery requirements.

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Description

Test your understanding of Time-Driven Activity-Based Costing (TDABC) concepts. This quiz covers various aspects of TDABC, including resource capacity, overhead allocation, and managerial actions to improve efficiency and profitability. Challenge yourself with questions related to cost management strategies in organizations.

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