Chapter 11 - Answer - MANAGEMENT ACCOUNTING- Solutions...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
MANAGEMENT ACCOUNTING- Solutions Manual CHAPTER 11 SYSTEMS DESIGN:  ACTIVITY-BASED COSTING  AND  MANAGEMENT I. Questions 1. The three levels available are: Level 1, in which a company uses a plantwide overhead rate; Level 2, in which a company uses departmental overhead rates; and Level 3, in which a company uses activity-based costing. 2. New approaches to costing are needed because events of the last few decades have made drastic changes in many organizations. Automation has greatly decreased the amount of direct labor required to manufacture products; product diversity has increased in that companies are manufacturing a wider range of products and these products differ substantially in volume, lot size, and complexity of design; and total overhead cost has increased to the point in some companies that a correlation no longer exists between it and direct labor. 3. The departmental approach to assigning overhead cost to products relies solely on volume as an assignment base. Where diversity exists between products (that is, where products differ in terms of number of units produced, lot size, or complexity of production), volume alone is not adequate for overhead costing. Overhead costing based on volume will systematically overcost high-volume products and undercost low-volume products. 4. Process value analysis (PVA) is a systematic approach to gaining an understanding of the steps associated with a product or service. It identifies all resource-consuming activities involved in the production process and labels these activities as being either value-added or non- value-added. Thus, it is the beginning point in designing an activity- based costing system since management must know what activities are involved with each product before activity centers can be designated and cost drivers established. Also, PVA helps management to eliminate any non-value-added activities and thereby streamline operations and minimize costs. 5. The four general levels of activities are: 11-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 11 Systems Design: Activity-Based Costing and Management 1. Unit-level activities, which are performed each time a unit is produced. 2. Batch-level activities, which are performed each time a batch of goods is handled or processed. 3. Product-level activities, which are performed as needed to support specific products. 4. Facility-level activities, which simply sustain a facility’s general manufacturing process. 6. First, activity-based costing increases the number of cost pools used to accumulate overhead costs. Second, it changes the base used to assign overhead costs to products. And third, it changes a manager’s perception of many overhead costs in that costs that were formerly thought to be indirect (such as depreciation or machine setup) are identified with specific activities and thereby are recognized as being traceable to individual products. 7.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 14

Chapter 11 - Answer - MANAGEMENT ACCOUNTING- Solutions...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online