Costs Chapter 4: ABC, Lean Operations,
and of Quality
cost distortion - answerOvercosting some products while undercosting other products.
departmental overhead rates - answerSeparate manufacturing overhead rates
established for each department.
plantwide overhead rate - answerWhen overhead is allocated to every product using the
same manufacturing overhead rate.
activity-based costing (ABC) - answerFocuses on activities as the fundamental cost
objects. The costs of those activities become building blocks for compiling the indirect
costs of products, services, and customers.
batch-level activities - answerActivities and costs incurred for every batch, regardless of
the number of units in the batch.
facility-level activities - answerActivities and costs incurred no matter how many units,
batches, or products are produced in the plant.
product-level activities - answerActivities and costs incurred for a particular product,
regardless of the number of units or batches of the product produced.
unit-level activities - answerActivities and costs incurred for every unit produced.
activity-based management - answerUsing activity based cost information to make
decisions that increase profits while satisfying customers' needs.
non-value-added activities - answerActivities that neither enhance the customer's image
of the product or service nor provide a competitive advantage; also known as waste
activities.
value-added activities - answerActivities for which the customer is willing to pay
because these activities add value to the final product or service.
value engineering - answerEliminating waste in the system by making the company's
processes as effective and efficient as possible
waste activities - answerActivities that neither enhance the customer's image of the
product or service nor provide a competitive advantage; also known as non-value-
added activities.
and of Quality
cost distortion - answerOvercosting some products while undercosting other products.
departmental overhead rates - answerSeparate manufacturing overhead rates
established for each department.
plantwide overhead rate - answerWhen overhead is allocated to every product using the
same manufacturing overhead rate.
activity-based costing (ABC) - answerFocuses on activities as the fundamental cost
objects. The costs of those activities become building blocks for compiling the indirect
costs of products, services, and customers.
batch-level activities - answerActivities and costs incurred for every batch, regardless of
the number of units in the batch.
facility-level activities - answerActivities and costs incurred no matter how many units,
batches, or products are produced in the plant.
product-level activities - answerActivities and costs incurred for a particular product,
regardless of the number of units or batches of the product produced.
unit-level activities - answerActivities and costs incurred for every unit produced.
activity-based management - answerUsing activity based cost information to make
decisions that increase profits while satisfying customers' needs.
non-value-added activities - answerActivities that neither enhance the customer's image
of the product or service nor provide a competitive advantage; also known as waste
activities.
value-added activities - answerActivities for which the customer is willing to pay
because these activities add value to the final product or service.
value engineering - answerEliminating waste in the system by making the company's
processes as effective and efficient as possible
waste activities - answerActivities that neither enhance the customer's image of the
product or service nor provide a competitive advantage; also known as non-value-
added activities.
