Chapter 7

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Managerial Accounting, Spring 2013
Read chapter 7, complete the following which are DUE March 3, 2013
Complete all Questions as marked on page 301 (7-1 through 7-10).
Also the following problems sets should be completed in excel.
Chapter 7, (page 308) Problem 7-9
Questions
7-1 In what fundamental ways does activity-based costing differ from traditional costing methods such as job-order costing as described in Chapter 3?
a) Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effects basis.
b) Some manufacturing costs may be excluded from product costs.
c) Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.

7-2 Why is direct labor a poor base for allocating overhead in many companies?
It is directly assumed that overhead cost is proportional to direct labor, when the presence of technology violates that assumption.

7-3 Why are top management support and cross-functional involvement crucial when attempting to implement an activity-based costing system?
Top management and cross-functional involvement is crucial when attempting to implement an activity-based costing system because in order to have a successful implementation it must be strongly supported by top level managers and the design and implementation should be the responsibility of cross functional team rather than of the accounting department.
7-4 What are unit-level, batch-level, product level, and organization-sustaining activities?
Unit level activities are performed each time a unit is produced. The costs of unit-level activities should be proportional to the number of units produced. Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch. Product level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of

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