C. Ensure that the costs in the pool are homogenous, or similar (this provides more accurate information)
In the cost allocation process, an allocation base
C. Both a and b
The direct method of allocating costs
C. Allocates service department costs to producing departments only
When fixed costs are stated on a per unit basis
D. Both a and b
One way to avoid the problems associated with unitized fixed costs is to
B. Use a lump sum method of allocating fixed costs
Controllable costs for the manager of Producation Department A include:
B. Costs of material and labor used in Department A
In allocating costs to products, more accurate costing is generally obtained by
B. Having more than one cost pool
Costs drivers in activity based costing
C. Often assign more costs to low volume products than traditional allocation methods
Most companies that use an activity based costing system use
D. more then five cost pools
Cost allocation refers to
the processing of assigning indirect costs
What is a cost objective
A product, service, or department that receives an allocation of cost
Why is it generally a good idea to allocate budgeted, rather than actual, service department costs?
If budgeted costs are allocated, then service departments cannot pass on inefficiencies and waste. Allocating actual costs gives the service department little incentive to be efficient
What is a responsiblity accounting system?
Revenues and costs are traced to departments/divisions and individuals with related responsibility for generating revenues and controlling costs. This facilitates performance evaluation of managers and the operations under their control
Why might noncontrollable costs be allocated to a department?
Managers are allocated costs beyond their control in order to make them aware that the costs exists and must be covered by revenues of the firm
How would traditional methods of allocating overhead to products underallocate costs to low production volume products?
They use a small number of cost pools and allocation bases related to production volume but some costly activities are not related to production volume.
How does activity based costing differ from the traditional costing approach?
Traditional costing uses allocation bases that are measures of production volume and their are few cost pools
ABC focuses on major activities that cause overhead costs to be incurred. Many activities are not related to production volume.
When would activity based costing give more accurate costs than traditional costing systems?
The production process is complex and varied (high/low volume products)
Products consume resources differently
There are activities that are not related to production volume
In the cost allocation process, the cost objective is the
C. The product, service or department that is to receive the allocation