Chapter04 Solutions-Hansen6e

Chapter04 Solutions-Hansen6e - CHAPTER 4 ACTIVITY-BASED...

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CHAPTER 4 ACTIVITY-BASED COSTING QUESTIONS FOR WRITING AND DISCUSSION 1. A predetermined overhead rate is simply an estimate of the overhead used per unit of driver. It is calculated using budgeted over- head and budgeted levels of the associated driver. Predetermined rates are used be- cause actual overhead may be incurred nonuniformly throughout the year. 2. Under- and overapplied overhead are mea- sures of the difference between the actual and applied overhead assigned to produc- tion. Underapplied overhead means too lit- tle was applied, and overapplied means too much was applied. 3. Plantwide overhead rates assign overhead to products in proportion to the amount used of the unit-based driver. If all products consume overhead in proportion to this unit-based driver, no distortion will occur. Cost distortion can occur if the products consume some overhead activities in differ- ent proportions than those assigned by the unit-based driver (the product diversity fac- tor). No significant distortion will occur unless the activities that are consumed in different proportions make up a significant propor- tion of the total overhead costs. Thus, two key factors are product diversity and signifi- cant non-unit-level overhead costs. 4. Non-unit-related overhead activities are those overhead activities that are not highly correlated with production volume mea- sures. Examples include setups, materials handling, and inspection. Non-unit-based cost drivers are causal factors that explain the consumption of non-unit-related over- head. Examples include setup hours, number of moves, and hours of inspection. 5. An overhead consumption ratio measures the proportion of an overhead activity con- sumed by a product. 6. Agree. Prime costs can be assigned using direct tracing and therefore do not cause cost distortions. Overhead costs, however, are not directly traceable and can cause distortions. For example, using unit-based drivers to trace non-unit-based overhead costs would cause distortions. 7. Activity-based product costing is a costing approach that first assigns costs to activi- ties and then to products. The assignment is made possible through the identification of activities, their costs, and the use of cost drivers. 8. The five steps are: (1) identify, define, and classify activities and key attributes; (2) as- sign the cost of resources to activities; (3) assign the cost of secondary activities to primary activities; (4) identify cost objects and specify the amount of each activity consumed by specific cost objects; (5) cal- culate primary activity rates and assign ac- tivity costs to cost objects. 9. The cost of resources is assigned to activi- ties using direct tracing and resource drivers. Resource drivers such as effort expended and material usage trace costs to activities using causal relationships. As- signing costs to activities requires un- bundling the general ledger. General ledger accounts accumulate costs by department and by account—not by activity. Thus, the costs in
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This note was uploaded on 01/28/2011 for the course ACC 3354 taught by Professor Tesher during the Spring '10 term at St. John's.

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Chapter04 Solutions-Hansen6e - CHAPTER 4 ACTIVITY-BASED...

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