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MS-08;
ACTIVITY-BASED
COSTING
& BALA}*EDSCOREGARD
ACTIVITY-BASED co5TING(A B c)-isa s y s t e ma t ic c o s t in o me t h 3 . d ^ t h a t t wa |
factory d costs and other indirect costs to products.ABC can-providemore accurateilata-6r rtn I
usinq.multiplF cost dri vers reflect more accuratelythe causesof incurred costs. utel
oi PIr
costs are allocatedto products by using a single
activity or Cost driver - uSuallylabpr houl In some accountingliterature, triditional costing is also
calledpeanut- butter costffi-
.Under ABC, factory overheadcosts are altocdtedto productsusing severalactivitiesor cost drivers
that arb etosely'relbtedwith the incurrenceof specificfactory overhead costs.
STEPSIN IMPLEMENTING ACTIVITY-BASED COSTING
1. Identify cost drivers (activities),cost poolsand activity centers.
. A cost driver is the particular activity thatgg1t5ggJbej^qgg[gnte of certain cc.t".
. A cosf pool il.g-glggpji.Cggl5 usually increasedor decreasedby a similar cost driver.
. An activity center is a unit of organization that performs a set of tasks. It is part of the
production process for which management wants a s€parate reporting of the costs of the
activity involved, Level of activity centers can be classlfiedinto four general categories:
A Unit-level activities performed each time a unlt is produced.
g Barch-levelactivities performed each time a batch of goods is handled or processed.
q Product-level activities performed to support production (sates) of.lpecific produJqttype.
m Facility-levelactivities performed to sustain a facility's manufacturingprocess'
2. Calculatepredetermip,e!ovgrjrqadrates for each identified activity. (
Predeterminedoverhead rate = estimated overhebd costs + estimated activity levet
NOTE:Estimatedfiguresare used becauseactualfiguresare not yet known at the staft of the period.
3. Alloceteoverheadcoststo the productson the basisof predeterminedoverheadrates.
f ln ,o-*ary. ABC is a'two-stage'allocation proGto. First, overhead costs are traced to adjvities; thca,
ACTMYY-3A3GD t{ANAGllfGt{T (AB}f) - integrates ABC with other concepts such as Totat Qudity
Managernent(TQM) and target costing to produce a management"sy;tem-th?fi'strives for excellence
through cost reducliQnand continuous process improvement. An impol'.tantEooLof ABM is to reduce or
' eliminate non-value.addedactivities and costs:
?l*p9A.VALUE-ADD€Dactivities are necessary activities that incur costs but''increase the perceived
value of a particular product to the customer.txample:#ElHjlgllslglt modiflcatio.n
.
NoN-VALUE-ADDEDactiVitiesareoperationsthatareeithe7(t)@or--"
(2) neqessary,bqt inqfficientand improvable.Example:rework of defectiveunitr 'Ud1fEAJuIAI/
-
BALANCTD SCORTCARD- is an approach to gerformq?cF-m.casu[ementthat combines traditional financiat
measures vntfi non-finatrcid pevformance meEffi.-EltreEfiZlfianbgement rs a performance evaluation
technique
thatis basedsolelyontraditional
financiat.?113i
pJBSeggIIyEs + 6h f*4 lAl**urhl
' Foug of rHEMLANCED scoREcARD (cLlF)
' 1) FINANCtrAL p€rcp€cti\re - fircasuresreflectingfinanciafperformance. j.'. '
. :. ' !'lis, " fxainnles:profit, returnon investment(RoI),reveriuegrowth
2)"CtJSTOtvlER perspective - measures havinga directimpacton customers, , ''l:.
Exarnples:custornersatisfaction,customerretention,marketshare,customercompluints
& GROwtH persBective- measuresdescrlbingthe company ernpfoyeerslearning'curve.
3) LEARNI|TIG
' Exampbs: employeesatisfaction,employeeturnover,training and recredtion
4) INTERNALBUSINESSPROCES9ES perspective- measuresshowingkey businessprocessesperformance.
Examples: rnanufacturingfficle efficielcy, product quality, productivity measures,throughput
COMPONENTS OFBALANCED SCORECARD
uftAr- STRATFGIC 'OBJECTIVES l:- u statement of what the strategy must achieve and what is criticat to its
.\ success.
uo^r - STRATEGIC INITIATTyES- key action programs required to achieve strategic objectives.
. Lr, l. lEtlORMAllCE MEASQRES - describehow successin achievingthe strategy will be me?sured.
thd it* [L/ BASELINE PERFORMANCE - the current level of performancefor the performancemcesure.
TARGETS - the level of performanceor rate of improvementneededin the perforrnani6-qg$ggg.
nW
{v -- f'
f Stntegic obJectivesfocus on WHATis to be achieved. Strategicinitiativesfocus on HOW it will be achieved.
Performancemeasures, basetineperformanceand targets relite to how it will be MEASURED.
ReSA -76e Reu,iewS€/riol al /4eas'4la,t#l MS.(}8
ACTIVITY.BASEDCOSTING& BALANCEDSCORECARD t
EJEBEISES:ACf,IVII:gASEDeQSll$l-E.g-SAl=AlgC-F-D*5-C-8BEC-,ABD
i. Activity Lcvels
6(ctuo * ti
,,.' Directlabor h.ours 600,000 hrs.- 550,00Ohrs.> Gtt OAIO s.Wnoid
fi.ilI- I'qFrr " e 'l.h.l
What was the manufacturingoVerheadfor Vios Companyfor last year? i .
a. Over-appliedby F 40,000 c. Over-appliedby P 20,000 an
b. Under-appliedby P 40,000 ,X Under-appliedby P 20,0O0 tpt;d w
B) Lancer Company us€s activity-based costing to compute product costs foi external reports. The
company has three activity centers,and applies overhead uslng'predeterminedoverheadjar${or eegh
.activity center. Estimated costs and activities for the current year are presented below for the three
actrvrty
- centers:
Estimaled Ov_erhead CpSt EstimatedActivity
Activity 1 P 6L,387 2,300
Activity 2 P 34,076 2,800
Activity 3 P 69,075 2,50O
Actual costs add activiti€s for the current year were as follows:
Astlra!_Ojqglheallgqsj Aqt_ualActiv_ity
Activty 1 P 61,392 2,290
Activity 2 P 33,941 2,795
Activity 3 P 69,080 1,340
r i' : ' i. i- , l ' ::.
1 :. ',i .'
P age2of4pages
@)
'iJ---/
Duringthe most
Inspectiontime 1 day
Processtime 2 days
Movetime 3 days
Queuetime 4 days
Wait time 5 days
. REQUIRED:
ftttt+,t+)1. How long in days is the manufacturingcycletime or throuqhputtime? l,C Afi|f
---'
illo 2. What is the manufacturingcycleefficilncy ratio? 7o/ J ,.=..7
tlto 3' what percentageof the productiontime ii spgnt on non-vatue-added activities?V"'/, )''"'
lt 4. How long in days is the deliverycycle time?\5I
ManufacturingCycleTime (ThroughputTime)
5. Quality Costq
A) What are the four categoriesof quality costs?
lo
k tau'1t\' d1P^r'"tf
a. Internal failure,externalfailure,carryingand orderingcosts
jrrrp* 6hrr
,fu Prevention,appraisal,internalfailure,and externalfailure costs
c. Productliability,warranty,appraisal,and training costs
- :ld'-s
f,ttt alat Ckk" r'^(
d. Training,testinE,failure,and conformancecosts
-1an;cgY.,.n ' t^k4la,'d.(r*r
B) Conformance cos.!s,rJlfff.f;dJ9.*gL..l"-.tive productsfrom fattinginto the handsof customers,are
-compospd
-;:::::i-;---E;
mposFoor of Fht
rvY* fr .tu6b:
----''-'.-,-a4"'6f,oAi4i"
,-*1'" rq
.f a;- Preveftion
" - 'b. -Frevqlt!9n and
?nd apBraisaf
appraisal costs
coSts c. Appraisatand internal failure costs
Pr€ventionand interndffailure costs d. Internal and externalf"lri" .ort.
C) Non-conforn-lancecosts, incurred because defects are produced despite efforts to avoid them, are
composedof
a. Preventisnand appraisalcosts c. Appraisaland internal failure costs
. b' Preventionand internal failure costs F krternal and external hilure costs
t' br/*'' d4;"'
6. productMty lrlcecurcs
. - Mirage company manufactures a singrletype of bracelet being sold for p 25 per unit. The foilb/urlrg
'informationwas made available:
201.2
Unit sales(P.25 per unit) 60,000
Z*A13
64,000
%a^
Material usaqe 75,000 pounds 89,600 poundsq
f uatertal.o"i P 7.2A per pound P 6.80 per pouhd
Laborhours 10,000hours 10,847 hourb
fLabor cost P 30 per hour P 32 per hour
A) The opprational partiat produciivity of DIRECTMATERIAL for (1) 2012 and (2) 2OI3 are
G) 0.800 (2) 0.7t4 ('.ol7t' c. (1) 6.000 (2) 5.900
F
' b. (1) 0.111(2) 0.105 d, (1) 0.200 (2) 0.184
B) The operationalpartial productivityof DIRECTtiBOR for (1) 2012 and (2) 2 0 1 3a re
a. (1) 0.800 Q) a.714 (1) 6.000 (2) s.e00 b"rt"
J.I
b. (1) 0.111 (2) 0.10s d. (1) 0.200 (2) 0.184 i
r+7
c) The financialpartiaf productivityof DIRECTMATERIALfor (1) 2Ot2 and(2) 2013 are
a., (1) 0.800 (2) 0.7L4 c. (1) 6.000 (2) s.900 - t,o/
\r
( 1 )0 . 1 1 1(2 )0 .1 0 s' -
,E d. ( r i 0.200izj o.r e+ /+r xt.t
D ) The financialpartialproductivityof DIRECTl-ABoRfor (1) 2or2 and (2) 2013 are
a. (1) 0.800 (2) o.7I4 c. (i) 6.000 (2) s.900 e"a/
b. (1) 0.111 (2) 0.10s tt10.200 izl o.req /qslr)D
/
E) Thetotalproductivity for 2012as measured
in both (1) unitsand (2) salespesosare(f)
o - .07 (2)
t42s p 1,78s7 c (2 ) p o . L t 2 7
(r) 0 . 0 0 4 s 1 0
'/ b. (\1
1 ) 0.06 6e19 (2) p 1.6730 9 )p L.7sB7
d . (t ) o . 0 7 L 2 4 (2
7. lilarketingl Eff€ctiveness
AccentCompanyitplanmng,to sell 1,600 units at P 25 contributionmargin per unit (estimatedmarket
size for the year was 32,000 'units). At the end of the period, the cgrnpianysold 3.000 units at P 35
contributionmargin per unit (actualtotal market size was determinedto be 100,000units).
$ltv\P_:UgTXEBEI-S.E_S(1&U_E_OBI:A!SE_ilvlu!IPl=E_c.t!8I-QE_)
1. Sedan Company producbs two products in a single factory, The following production and cost
information has been deterrnined'
*_**rf _1*{6Hgdc1_G4
Production 10,000 2,000
Materiafmoves (total) 100 tcln 40 . l*o
Producttests (tota|)
Direct labor hoursh";@ gq lml
5
Thecontroller ,o,u,oufilul a o* p {38boo, p t40,oo0of whichretatesto material
hasdetermined
moves, P 150,000 relates to testing and the remainder is related to labor time. Under activity-based
costing{ABC),what would.theoverheadcost per unit be for ModelF1? I
Page4of4pages
ReSA Review School, Inc. - \n
z 735g8O7 I 09104391320
17343g8g l.Og23gt24t2U0916,+3838e+g.icdbner@hotmait.om
MANAGEMENT SERVICES A. Lee
auizzer: Ivt908
ACTIVITY.BASED
COSTIT{G& BAI.AIIGED
SCORECARD
Sources:CMA/ClA/RPCPA/AlCPAlvarbus
test banks
1. An objectiveof activity-basedmanagernentis to
C a. Eliminat€the maiorttyof cenhalizedactivitiosin an organizatbn
b. Instituteresponsibifityaccountingsystemsin decentralizedoqanizations
c. Reduoe or eliminate non-valusadded activitics incuned to make a prodrrc{or provide a
servrt;e
d. Allof the above
2. A tool that focuses on rnanuf;acturingprocesgee and sscks to reduce or optimize the acfiviti.ls
perfonned within the prccers b
A a. . Processvalueanalysis c. Bencimating
b. b,ongingerir€ d. lt{oneof Eteaborre
. 3. A non-value.adding
cost is
D a. Usnlly direct to a product c. Uncvdd.ble
b. The same as a dbcretitrnarycoet d. Nst ecrantbl to manufacfuringa product
4. A value-addedempbyee in a consffuctionftrm would bc:
C a. An acounbnt c. A painter
h A secretary d. All dthe &vc
5. W*te'is anofrrernarnebr
A a. Non-valusaddedosts c. Tr€h costs
b. ldb costl d. AHof$Gabore
6. Non-vdue addcd coots include:
D a. Itfiovetime c. tnspec{kmtime
b. Sragu time (l ff| dfio above
7. 'Machinehours' is an cxampF of a (n) acilhily.
D a. Belch-level c. Prodrct{qrd
. b. Facrry-brel d. Unit-buel
S. lracfi*rcrff,p is anexrmpbof a (n1 aothrity.
A a. Bduleud c. Produc{-bvel
b. F-tity-bvll d. Unit-lwel
9. TV Adrgecment b an cxsnple d a (n) activity.
C a. Batcfrleryd ' c. FrorhrciJcrcl
b. Facility-led d. Urdt-b\rd
10. LaffBapir€ is an oxsrplc d a (n) _ totivity.
B a. B#r-bvd c. Prochrct-level
b. Fadlity-|ewl d. Unit-fcvel
11. Whidt of frte frlouttg level of cocte_shqrHnot bc irphrdcd in prodrct costs (mainlybecauseindirectto
productlinGta!fifcttt) br inbntal minagenrent reporb tffat are usedfiordecisionmitingZ
D a. Unit-lendacfifiigs 6. Produc{-lerrclactivifics
b. Batcfi-levclaE{ivities d. FaciFg-bvel activities
12. These activities arise because a companydoes fticuler typ€s of businessor maintainsa particular
product.
C a. Batch-tevelactivities c. Sustainingactivitbs
b. Faeility-sustaining activities d. Unit-levetaclivities
17. Theterm'costdriver'refersto
D a Any ac-tivitythatcan be usedto predictcostchanges
b. The attemptto controrexpenditures at a reasonabre
revel
The personwho gathersand transferscostdatiato the management
accountant
I
d. Any activitythat causescoststo be irrcurred
18. A costpoolis
D a. All costsof a production
department
b. The materiatand laborcost usedon a particulariob
c. Over-applied overheadcosts '
or under-applied
d. ,Agroupof overheadcostsdrivenby the semeactivity
_ 19. ln ABC,preliminary.cost
allocationsassigncoststo
D a. Departments s. products
b, pr@6ses d. Activitres'
20. ln AEC,finafcost albcationsassigncoststo
C a Departments 6. products
b. Frocesses d. Activities
21. Lebanonmanufactufes $yoversionsof a product Productionandcostinformation showthe following:
ModelA Mod€lB a
Unitsproduced 100 200
Materialmoves 10 40
Directlatrorhoursper unit 1 z
_ UnderA8€, the m*rids handtingcostsof P 100,000allocatedto a unit of MoctetA is:
B a. PtO c. p333
[. P20 0 d. P400
22. lran prduces threeproducts.Productionand cost informationshowthe foltowing.
|lanufacturing ModetF Model.A ModetQ
Unib produced 1,000 3,000 6^000
Directlaborhours ?,000 1,000 Z,OOO
Numberof inspections 2A 30 S0
UsingAFC,,theinspe0tion costsof P 50,000allocatedto eachunitof ModelF woutdbe
-
B a. P S.00 c. p 20.00
b P 10.00 d. Someothernumber
23. A companyusingactivity-based overheadrates
D "Will
a. usually'have
higherbudgetvariancesthanone usrnga singterate
b. Will usuallyhavehighervotumevariancesthanone usinga slrlglerate
c. cannotcomputefixedand variablecomponents of overh-ead
colt
d' Shdutdhavqbetterinfornationfor planninganocontroitn"non" a iingtti;rate
"ring
24' The resourceutilizedby a givenproductdividedby the totalamountof the resourceavailable
is calted
.F. ,. 3: Aclivitydriver c. Costobject
' ' b. Consumption ratio d Sustaining activity
ReSA - 74e Reaea' Sl4nat ( Accaaataac? : , *. MSQ-08
ACTIVITY-BASED
COSTING& BALANCED
SCORECARD
Inc'produces
svria isasforrows:
""it#llu"tion
T:';.:':t"q#
Directlaborhours 4,000 2,000 4,000
Numberof setups 100 1S0 ZS0
' Theconsumption
ratiofor the numbeiof setupswouldbe:
YouYou
B ?: 4A%-20% - 4AYo. c. 10o/o
- i}o/o -6}0/o
b z0% _?0%- soo/o d. some othernumbers
3l]ll:,1:"'1?T$"
Numberofsetups
i:333
100
!:333
150
li.'tr
250
b@
600 tc@
Numberof shipments 200 225 2TS ?Oo @
overhead p
zo1,3oo,lnsinJiDn n "Kr' e0,000
"or,r,5llf"T:i"*r:FH:r3'f'-fiippins::r"
Whatwould "no
be the per unit overheadcostfor Mdef C if activity-hsed costingwere used?
A a. P 5.00 c. P 122.64
b. P 16.25 d- . Sormothcr number
28. Undera costingsystemthat atlocatesoverheadon the basis of direct labor hours,the materials
hand.ling
costsallocatedto one unitof wall mirors uould be
. B a. P 5OO c. P 2,000
b. P1,000 , d. p5,o00
;it:2::^r"::,m:
P 117permachinehour
P ag e 5 o f S p a g e s
ReSA - 74c Rataal Slioa( a( 4am,taual
ACTIVITY-BASEDCOSTING & BALANCEDSCORECARD
performance
50. A reportthat measuresfinancialand non-financial measuresfor variousorganization
units
in a singlereportis calleda(n)
A a. Balancedscorecard c. lryibalanced
scorecard
b, Financialreportscorecard d. Unbalanced scorecard
52. Whichof the followingis not one.ofthe four perspectivesof the balancedscorecard? .
A a. Investment in resourcesperspective c. Learningand grovnth perspective
b, Customerperspective d. Financialperspective
53. Customer-satisfaction
measuresare examoleof:
B a. Goal-congruence approach c. Financialrepgrtscgrecardapproach
b. Balancedscorecardapproach d. lnvestment successapproach
57. Whtch of the following performancemeasureswould be part of those used for internal busincsc
processesperspective? ,
A a. Cycletime .c. Hoursof,lrainingper employeer
b .Em p lo yeesatisfaction'*d'custome rre t e n t io n 1 , l
cycleratiois a measureof
59. Manufacturing
c a. Bofth;e;k c. Efficiency
b. Effectiveness d. Quality
67. The quality costs that are incured determine whsth€r partbular. unib of product meet guality
strandardsare -to
A a. Appraisalcosts c. lntemalfiEilure
cosb
b. Pr€'\rontl0ncostb d. Extemalfailurecosts
t
-* 68. The qualrtycoststhat are incunedwhen the cornpanydehrminesthat specilicunita not
do meetquafity
-\ standardsare
C a. Appfiaisalcosts c. f;Fm*fefttre coib
b. Prcwntion oS (t. tr5n*&lftorta
69. The qualitycosts that are incunedrvfiena unit of eroefgctffi to pGrfirrmto custqn€r expecilltionsare
-
D a. Appfabal coets e. Internaifailurecosts
b. Prurenttrn
costs d. " Externalfailure
mb
*1 70. Theebt of dlryr$ng of dtftcftre-unfrsmlH b€c|aosisd a$a(n):
/;'l'
'c a. Prewntivccost c. Inbmal frilure coCt
b. Apprebanoot d. ExFrnalfbilurccost
71. The coc*(f stalistbd $-6try control in a proeftrctqurttycoet oystemis ca$gorized as a(n)
D a. fntemalfailurecoat c. Extemalfailurecost
b. Trainir€ ooct d. Appraisafcost
*.1
73. The cost o-fsc€p, fetroilq and toolingchangresin a productqustinyc6t systernis categorizedas a{n)
C a. Trainirg qoet c. tnternaltatirrc ooci
b. Extemalfailurcost d. Preventkfr cct
74. The cost of processingcustomercomplaints
D a. Appraisalmsts c. Internaffailurecosts
b. Preventioncosts d. Externalfailurecosts
8 1 . Forrowins
areitems
ilcruded companv
fqrthetast
month:
i.:H::'ltffi:tr10*o;T3,l3;*ussia
euatity =
qostindex x 1oo
#f##-
noquaritv
rherorrowl un"#oo
-':::;; "'
:"":';:"* H:" o
Appraisatcosts p6,000 p5,000
Internalfailure
co.sts P 12,000 p 1b.000
Externalfailurecosts P 14,000 p 11,000
Directtaborcosts p 90,000 p 100,000
Baseduponthesecostdata,the qualitycostindex
a. Decreased4 pointsfr:omMayto June c. Increased10 pointsfromMayto June
b. Was unchanged fromMayto June d. Decreased10 pointsfromMayto June