Topic 10 - Activity-Based-Costing (ABC)

C213: Accounting for Decision Makers

Questions

1. What are the advantages and disadvantages of using an ABC system?

1. What are the advantages and disadvantages of using the Traditional Costing method?

1. Under what circumstances is it more appropriate to use an ABC instead of Traditional Costing?

1. What are two characteristics of a good management accounting measure?

1. A company is considering buying a new truck or keeping their old truck.The cost of the new truck is $60,000.The cost of the old truck was $45,000.The company has $60,000 in the bank that they are earning $600 per year in interest. If they purchase the new truck, they will withdraw the $60,000 from the bank to pay for the new truck and will no longer earn the interest.
   1. The cost of the new truck is considered a(n) differential, sunk or opportunity cost? Circle the correct answer.
   2. The cost of the old truck is considered a(n) differential, sunk or opportunity cost? Circle the correct answer.
   3. The interest lost if the company purchases the new truck is considered a(n) differential, sunk, or opportunity cost? Circle the correct answer.
   4. Which of the three amounts is irrelevant when considering whether to purchase the new truck or keep the old truck: (i) The cost of the new truck, (ii) The cost of the old truck, or (iii) The interest lost if the new truck is purchased?

1. Indicate where each of the situations below is an (i) ethical internal dilemma and/or (ii) an ethical external dilemma.

1. Padding expense accounts
2. Bid rigging to give business to favored suppliers
3. Theft in the workplace
4. Taking kickbacks on purchase contract
5. Adjusting inspection reports to reflect higher quality of product.
6. Using company assets for personal use.
7. Withholding unfavorable information
8. Inflating profits on financial reports

1. During its first month of operations, a manufacturer incurs the following costs related to activities with the factory:

Direct Materials $50,000

Direct Labor $40,000

Manufacturing Overhead $60,000

What amount should be reported as cost of goods sold on the income statement if 10,000 units are produced and 7,000 units are sold?

1. Stewart Manufacturing produces and sells die cast race cars. The variable cost (VC) for each die cast car is $6 and the total fixed costs (FC) are $600,000.Calculate the following:

	VC Per Unit	Total VC	FC Per Unit	Total FC
Stewart sells and produces 1,000 units
Stewart sells and produces 2,000 units
Stewart sells and produces 5,000 units

	VC Per Unit	Total VC	FC Per Unit	Total FC
Stewart sells and produces 1,000 units
Stewart sells and produces 2,000 units
Stewart sells and produces 5,000 units