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Exam 4: Activity-Based Management and Activity-Based Costing

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Question 61

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An objective of activity-based management is to

A) eliminate the majority of centralized activities in an organization.
B) reduce or eliminate non-value-added activities incurred to make a product or provide a service.
C) institute responsibility accounting systems in decentralized organizations.
D) all of the above

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Question 62

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What are the three classes of activities defined by activity-based management.What is customer response to each of these activities? What is management's reaction to each of these activities?

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Value-added activities--increase the wor...

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Question 63

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Houston National Bank Houston National Bank had the following activities,traceable costs,and Physical flow of driver units:

Activities	Traceable Costs	Physical flow of Driver Units
Open new accounts	$50,000	1,000 accounts
Process deposits	36,000	400,000 deposits
Process withdrawals	15,000	200,000 withdrawals
Process loan applications	27,000	900 applications

The above activities are used by the Memorial branch and the University branch:

	Memorial	University
New accounts	200	400
Deposits	40,000	20,000
Withdrawals	15,000	18,000
Loan applications	100	160

Refer to Houston National Bank.What is the cost per driver unit for new account activity?

Lead time in a production process includes both value and non-value added time.

An activity that a customer is willing to pay for and increases the worth of a product is referred to as a _________________________ activity.

A company should strive to reduce all non-value added activities to a minimum.

Under activity-based costing,benchmarks for product cost should contain an allowance for

Traditional standard costs are inappropriate measures for performance evaluation in the "new era" of manufacturing because they

Business value-added activities increase the value of a product without increasing production time.

ABC has been criticized for a variety of reasons.Discuss these criticisms.

Holt Medical Corporation manufactures two models of a medical device: Model 101 and Model 102. Below is the current year production data for the company:

	Model 101	Model 102
Direct material in units	97,000	113,000
Direct labor hours	30,000	40,000
Machine hours	26,000	13,000
Number of setups	300	600
Number of devices produced	16,000	8,000

The 210,000 units of material had a total cost of $1,365,000.Direct labor is $17 per hour. The company has total overhead production costs of $1,850,000. a.If Holt Medical Corporation applies factory overhead using direct labor hours,compute the total production cost and the unit cost for each model b.If Holt Medical Corporation applies factory overhead using machine hours,compute the total production cost and the unit cost for each model. c.Assume that Holt Medical Corporation has established the following activity centers,costs drivers,and costs to apply factory overhead.

Cost Pool	Cost Driver	Cost	Volume
Equipment Maintenance	# of machine hours	$585,000	39,000
Production Setup	# of setups	$125,000	900
Material Handling	Units of Materials	$540,000	210,000
Transportation Costs	# of devices produced	$600,000	24,000

Compute the total cost and the unit cost for each model. d.Explain why the unit cost for each model is different across the three methods of overhead application.How can such information benefit an organization?

A cost accumulation system should most likely be reevaluated when a company has

Ultimate Vision Corporation Ultimate Vision Corporation has two product lines: LCD televisions and projection televisions.The company has budgeted the following production and overhead costs for the upcoming year:

		LCD TV’s	Projection TV’s
Units Produced		1,500	2,250
Direct labor hours per Unit		20	30
Material Moves per Product Line		15	20
Budgeted Materials Handling Cost	$75,000
Total Machine Hours		10,000	16,000
Machine Maintenance Costs	$180,000

Refer to Ultimate Vision Corporation.If the company uses number of units produced to allocate factory overhead,the machine maintenance cost allocated to projection TVs would be:

Batch level costs occur once for each unit produced.

Activity-based costing systems generally use volume-based cost drivers.

In activity-based costing,how are cost drivers selected?

In an activity-based costing system overhead costs are first recorded in activity center pools before being recorded in a general ledger

Activity-based costing is appropriate for a company that has high overhead costs that are not proportional to unit volumes of individual products.

When non-value added time is greater,manufacturing cycle efficiency is lower.

Discuss the characteristics of a company for which ABC would be appropriate.