Question

Describe Activity Based Costing and what are the main benefits.

Describe the 4 types of activities that cause overhead costs (ie..batch, product, unit, and facility)

Explain the trends in process operations.

What is a Cost of Quality Report and how is it prepared?

Answer 1

Question1

Activity based costing is a costing method that has been developed to deal with the perceived weaknesses of traditional absorption costing.

Benefits are

1. ABC provides a more accurate cost per unit. As a result, pricing, sales strategy, performance    management and decision making should be improved.

2. It provides much better insight into what drives overhead costs.

3. ABC recognizes that overhead costs are not all related to production and sales volume.

4. In many businesses, overhead costs are a significant proportion of total costs, and management needs to understand the drivers of overhead costs in order to manage the business properly. Overhead costs can be controlled by managing cost drivers.

5. It can be applied to derive realistic costs in a complex business environment.

6. ABC can be applied to all overhead costs, not just production overheads.

7. ABC can be used just as easily in service costing as in product costing.

question 2.

1. Batch activities are costs incurred every time a group (batch) of units is produced or a series of steps is performed. Purchase orders, machine setup, and quality tests are examples of batch‐level activities.

2. Product‐ activities are those activities that support an entire product line but not necessarily each individual unit. Examples of product‐line activities are engineering changes made in the assembly line, product design changes, and warehousing and storage costs for each product line.

3. Unit activities occur every time a service is performed or a product is made. The costs of direct materials, direct labor, and machine maintenance are examples of unit‐level activities.

4. Facility activities are necessary for development and production to take place. These costs are administrative in nature and include building depreciation, property taxes, plant security, insurance, and accounting, outside landscape and maintenance, and plant management's and support staff's salaries.