CHAPTER 4
ACTIVITY-BASED COSTING

CHAPTER REVIEW

UNIT COSTS

1. Functional-based and activity-based costing assigns costs to cost objects such as products and customers. Once costs are assigned to the cost object, the unit cost is calculated by dividing the total cost assigned to the units produced by the number of units produced.
2. Unit cost information is used to: ■ value inventory ■ determine cost of goods sold, which affects income ■ determine bids to give to potential customers ■ decide whether to make or buy a product ■ decide whether to accept or reject a special order ■ decide whether to keep or drop a product line ■ decide whether to introduce a new product
3. Different cost information is needed for different purposes.
4. For external reporting, product costs include direct materials, direct labor, and overhead.
5. Cost measurement involves determining the dollar amount of direct materials, direct labor, and overhead used in production.
6. Two cost measurement systems are: ■ actual costing ■ normal costing
7. Cost assignment involves associating costs with units produced.
8. Two cost assignment systems are: ■ functional-based costing ■ activity-based costing

Production of Unit Cost Information

9. Actual costing assigns actual costs of direct materials, direct labor, and overhead to products.
10. Actual cost systems are rarely used because they cannot provide accurate unit cost information on a timely basis.
11. Normal costing uses: ■ actual costs for direct materials ■ actual costs for direct labor ■ a predetermined rate for manufacturing overhead
12. A normal costing system can supply unit cost information on a timely basis.
13. The predetermined overhead rate is calculated as:
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14. Overhead is assigned to products using the predetermined overhead rate.