Arises with traditional systems more specifically the

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arises with traditional systems, more specifically, the under- or overcosting of products.AACSB: AnalyticAICPA BB: Critical ThinkingAICPA: FN MeasurementBlooms: ApplyDifficulty: 3 HardLearning Objective: 05-01Learning Objective: 05-04Learning Objective: 05-055-58
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Chapter 3 / Exercise 14
Managerial Accounting: The Cornerstone of Business Decision-Making
Hansen/Mowen
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Chapter 5 - Activity-Based Costing and Management101. Element Cellars produces wine in northern Oregon. Consider the following selectedcosts that arose during the current year:1. Safety costs at winery2. Truckload shipping costs3. Building maintenance costs4. Bottle and cork cost5. Development cost of new, after-dinner wine6. Tasting and testing costsRequired:A. Briefly distinguish between unit-level and product-sustaining activities.B. Classify the six costs listed as arising from a unit-level, batch-level, product-sustaining, orfacility-level activity.Solution:A. A unit-level activity is performed for each unit of production. In contrast, a product-sustaining activity is needed to support an entire product line. The latter is not necessarilyperformed each time a new unit or batch of products is manufactured.B.1. Facility-level2. Batch-level3. Facility-level4. Unit-level5. Product-sustaining6. Batch-levelAACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 05-035-59
Chapter 5 - Activity-Based Costing and Management102. Consider the following costs that relate to a bank and a manufacturer of software:Bank1. Review costs of commercial loan applications2. Operating costs of human resources department3. Immediate processing costs of a specific customer's cash deposit4. Bank membership costs of joining local Chamber of CommerceSoftware manufacturer5. Label and packaging charges from a commercial printer for a new software release6. Air conditioning/heating costs of the firm's production plant7. Transport costs of moving the finished products from production run no. 1 to the company'swarehouse8. Design and development costs of new spreadsheet softwareRequired:A. Classify the eight costs listed as arising from either a unit-level, batch-level, product-sustaining, or facility-level activity.B. Would number of loan applications ornumber of customers be a more appropriate cost-driver base for #1 above? Briefly explain.Solution:A.1.Unit-level5.Product-sustaining2.Facility-level6.Facility-level3.Unit-level7.Batch-level4.Facility-level8.Product-sustainingB. The number of loan applications would be more appropriate because it has a highercorrelation with the amount of review costs incurred. Applications create review costs;customers, on the other hand, may not.AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA: FN MeasurementBlooms: AnalyzeDifficulty: 3 HardLearning Objective: 05-03Learning Objective: 05-065-60
Chapter 5 - Activity-Based Costing and Management

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Managerial Accounting: The Cornerstone of Business Decision-Making
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Chapter 3 / Exercise 14
Managerial Accounting: The Cornerstone of Business Decision-Making
Hansen/Mowen
Expert Verified

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