Activity-Based Costing Exam Questions and Answers

Activity-Based Costing Exam Questions and Answers What is the cost hierarchy for activities? - Answer-1. Organization-sustaining activities 2. Facility-sustaining activities 3. Customer-sustaining activities 4. Product-sustaining activities 5. Batch-level activities 6. Unit-level activities What is the process used to assign costs in an ABC system? - Answer-1. Identify the relevant cost object. 2. Identify activities. 3. Assign (trace and allocate) costs to activity-based cost pools. 4. For each ABC cost pool, choose a cost driver. 5. For each ABC cost pool, calculate an allocation rate. (Allocation rate = Activity cost / Volume of cost driver) 6. For each ABC cost pool, allocate activity costs to the cost object. (Allocation = Allocation rate * Actual volume of activity) What are 3 alternative allocation rates? - Answer-* Past Cost Rate: use past costs and past volumes. * Estimated Rate: use estimated costs and estimated volumes. * Supply-Based Rate: use estimated costs and practical capacity. What should you look for when selecting cost drivers in an ABC system? - Answer-1. Cause and effect relationship between cost driver and activity costs. 2. Judgment in choosing and evaluating potential cost drivers.