Managerial Accounting
Chapter 5
7. Briefly describe the activity-based costing allocation process.
Activity-based costing involves two allocation stages and includes a multitude of cost drivers. The first stage known as ABC assigns costs to pools; which signify the activities of the costs to be incurred. During the second stage the cost pools are allocated to products or cost objects by utilizing cost drivers that measure the object’s use of that activity.
12. Milken Manufacturing has three product lines. The company’s new accountant, Marvin LaSance, is responsible for allocating facility-level costs to these product lines. Mr. LaSance is finding the allocation assignment a daunting task. He knows there have been disagreements among the product managers over the allocation of facility costs, and he fears being asked to defend his method of allocation. Why would the allocation of facility-level costs be subject to disagreements?
Allocation costs can be argued based on how the managers perceive how the charges apply to his/her department. This possibly can be minimized by explaining the facility level costs are not directly associated with a specific product or service, but incurred to support the facility as a whole.
16. What is the relationship between activity-based management and just-in-time inventory?
Activity-based costing involves two allocation stages and includes a multitude of cost drivers. The ABC assigns costs to pools; and during the second stage the cost pools are allocated to products or cost objects by utilizing cost drivers that measure the object’s use of that activity. This activity based management helps identify costs, while just-in-time-inventory seeks to eliminate the non-value added activity by reducing inventory holdings and removing the activities associated with their maintenance. The just-in-time systems inventory is made available just in time for customer consumption.
Chapter 6 3. Identify the four hierarchical levels used to
7. Briefly describe the activity-based costing allocation process.
Activity-based costing involves two allocation stages and includes a multitude of cost drivers. The first stage known as ABC assigns costs to pools; which signify the activities of the costs to be incurred. During the second stage the cost pools are allocated to products or cost objects by utilizing cost drivers that measure the object’s use of that activity.
12. Milken Manufacturing has three product lines. The company’s new accountant, Marvin LaSance, is responsible for allocating facility-level costs to these product lines. Mr. LaSance is finding the allocation assignment a daunting task. He knows there have been disagreements among the product managers over the allocation of facility costs, and he fears being asked to defend his method of allocation. Why would the allocation of facility-level costs be subject to disagreements?
Allocation costs can be argued based on how the managers perceive how the charges apply to his/her department. This possibly can be minimized by explaining the facility level costs are not directly associated with a specific product or service, but incurred to support the facility as a whole.
16. What is the relationship between activity-based management and just-in-time inventory?
Activity-based costing involves two allocation stages and includes a multitude of cost drivers. The ABC assigns costs to pools; and during the second stage the cost pools are allocated to products or cost objects by utilizing cost drivers that measure the object’s use of that activity. This activity based management helps identify costs, while just-in-time-inventory seeks to eliminate the non-value added activity by reducing inventory holdings and removing the activities associated with their maintenance. The just-in-time systems inventory is made available just in time for customer consumption.
Chapter 6 3. Identify the four hierarchical levels used to
References: Edmonds, T.P., Tsay B., & Olds, P.R. (2011). Fundamental Managerial Accounting Concepts. New York, NY: McGraw-Hill Itrwin.