Cost Accounting Exam 4

Activity Based Costing (ABC)

Designed to provide managers with cost information for strategic and other decisions that potentially affect capacity.

In ABC, _________ as well as _______ costs maybe assigned to products, but only on a cause-and-effect basis.

Manufacturing; Non-manufacturing

Some manufacturing costs maybe ________ from product costs.

excluded

ABC excludes organizations that 

Sustaining costs and idle capacity costs from product costs. 

ABC differs from traditional cost accounting because ______ overhead cost pools are used.

numerous

Each ABC cost pool has its own _______ measure of activity.

unique

Activity

An event that causes the consumption of overhead resources.

Activity Cost Pool 

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

Activity Measure

Equal to a cost driver. An allocation base in ABC system.

Transaction driver

Simple count of the number of time an activity occurs.

Duration driver

A measure of the amount of time needed for an activity.

ABC defines ____ levels of activity that largely do not relate to the volume of units produced. 

five 

The five levels of ABC costing

1. Unit level activity

2. Batch level activity

3. Product level activity

4. Organization level activity

5. Customer level activity

Activity Based Management is used in conjunction with _______ to identify areas that would benefit from process improvements by focusing on activities to eliminate waste, decrease processing time, and reduce effects.

ABC

Limitations of ABC

Substantial resources required to implement to maintain. Resistance to unfamiliar numbers and reports. Desire to fully allocate all costs to product. Potential misinterpretation of unfamiliar numbers.

Budget 

A detailed quantitative plan for acquiring and using financial and other resources over a specified for the coming time period.

A companies budget ordinarily cover a _________ period corresponding to its fiscal year.

one-year

Some companies also use a _________ budget, which is a 12 month budget that continuously rolls forward.

perpetual

A ________ budget is a 12 month budget that rolls forward on month (or quarter) as the current month (or quarter) is completed.

continuous

Key purposes for budgeting 

Planning and control. This improves efficiency and effectiveness of operations. Evaluate and reward employees.

Planning

involves developing objectives and preparing
various budgets to achieve those objectives.

Control

involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal.

Master Budget 

Is based on various estimates and assumptions. 

Production Budget

Must be adequate to meet budgeted sales and provide for the desired ending inventory.

Cash Receipts section

Lists all cash inflows excluding cash recieved from financing.

Cash Disbursements section

Consists of all cash payments excluding repayments of principal and interest.

Cash excess or deficiency section determines if the company will ____________ or if it will be able to repay funds previously borrowed. 

need to borrow money 

Financing Section

Details the borrowings and repayments projected to take place during the budgeted period.