Organization sustaining activities are carried out regardless of the companys

Organization sustaining activities are carried out

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Organization sustaining activities are carried out regardless of the company’s precise mix or mix of customers. 7-5 What types of costs should not be assigned to products in an activity-based costing system? Answer Organization-sustaining costs and the cost of idle capacity should not be assigned to products. These costs represent resources that are not consumed by the products. 7-6 Why are there two stages of allocation in activity-based costing? Answer There are two stages of allocation in activity-based costing. Costs must first be allocated to activity cost pools and then are allocated from the activity cost pools to products, customers, and other cost objects. 7-7 Why is the first stage of the allocation process in activity-based costing often based on interviews? Answer Some people are often involved in more than one activity, some way must be found to estimate how much time they spend on each. The most practical approach is often to ask employees what percentage of time they spend on each activity. It is also possible to ask people to keep records of how they spend their time or observe them as they perform their tasks, but both of these alternatives are costly and it is not obvious that the data would be any better. People who know they are being observed may change how they behave. 7-8 When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products? Answer In traditional cost systems, product-level costs are indiscriminately spread across all products using direct labor hours or some other allocation base that is tied to
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volume. As a consequence, high-volume products are assigned the bulk of such
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