9
Activity-Based Costing g
Solutions to Review Questions
g g g
9-1.
Commongallocationgbasesgaregdirectglabor-hours,gdirectglaborgcosts,gandgmachine-
hours.gSomewhatglessgcommongisgdirectgmaterialgcosts.
9-2.
Thegtermg“deathgspiral”grefersgtogagprocessgthatgbeginsgbygattemptinggtogincreasegpricesgto
gmeetgreportedgproductgcosts.gHighergpricesgreducegdemand,gleadinggtogproductiongandgst
illghighergreportedgproductgcosts.gEventually,gthegfirmglosesgproductsgasgthegmarketgwillgnot
gsupportgthemgandggoesgoutgofgbusiness.gThegdeathgspiralgisgnotgthegresultgofgthegcostgsyst
emgdirectly,gbutgthegresultgofgmanagersgmakinggdecisionsg(ingthisgcasegraisinggprices)gbas
edgongthegcostgsystemgthatgisg(oftenginaccurately)gsignalinggincreasedgcosts.
9-3.
False.gDepartmentgallocationgisgagtwo-stagegprocess,gsogthegfirst-
stagegassignmentgofgcostsgandgthegchoicegofgcostgdriversgaffectsgthegallocationgofgcostsgtog
products.gThegtotalgproductgcostsgaregthegsamegundergeithergapproach,gbutgthegindividualg
productgcostsgdiffer.gThisgcangaffectgthegdecisionsgmanagersgmakegregardinggindividualgpr
oducts.
9-4.
Mostgcompaniesgproducegmultiplegproductsgandgsimplygaddinggthemgupgdoesgnotgaccount
gforgdifferencesgingcomplexitygofgthegusegofgresources.gAsgangextremegexample,gsupposega
gcompanygproducedgairplanesgandgstaplers.gAllocatinggoverheadgongthegbasisgofgunitsgwou
ldgassigngthegsamegoverheadgcostgtogagstaplergandgagplane.
9-5.
Thegcostsgincludegthegsystemsgandgthegsoftware,gbutgthegmostgimportantgcostgisgmanagers
’gtime.gManagersgneedgtogmakegmanygdecisionsgaboutgthegactivitiesgandgthegcostgdriversga
ndgmanagersgneedgtogmakegmanygofgthegfirst-
stagegallocations.gThegbenefitsgcomegfromghavinggbetterginformationgaboutgthegusegofgres
ourcesgandgbetterginformationgforgdecisions.
SolutionsgManual,gChapterg9 483
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
,9-6.
1. Identifygactivitiesgthatgconsumegresources.
2. Identifygthegcostgdrivergassociatedgwithgeachgactivity.
3. Computegagcostgrategpergactivitygunitg(e.g.,grategpergsetup,grategpergpart,grategperg
machine-hour).
4. Allocategcostsgtogproductsgbygmultiplyinggthegactivitygrategtimesgthegvolumegofgactivitygc
onsumedgbygthegproduct.
9-7.
Thegcostghierarchygisgagclassificationgofgcostsgintoggeneralglevelsgofgactivity.gCostsgassigne
dgtogthegdifferentglevelsgofgtheghierarchygtendgtogbegrelatedgtogthegvolumegofgthegactivitygvolu
me.
9-8.
False.gWhilegthegtotalgcostgallocatedgisgthegsame,gthegreportedgcostsgforgindividualgproduct
sgwillgdiffer.gBecausegmanagersgmakegdecisionsgatgthegproductglevel,gitgisgimportantgthatgth
egreportedgcostsgreflect,gtogthegextentgpossible,gthegusegofgresourcesgbygthegproducts.
9-9.
Activity-
basedgcostinggwillgbenefitgmostgcompaniesgwithghighgoverheadgcostsgandgdiversegproductsg
andgprocesses.gIfgtheregisglittlegoverheadgorgifgtheregisgagsinglegproduct,gthegallocationgproce
ssgwillgnotgresultgingsignificantlygdifferentgproductgcosts.g(Evengifgtheregaregonlygagfew,grelativ
elyghomogeneousgproducts,gactivity-
basedgcostinggmaygbegusefulgforgcostgmanagement.gSeegchapterg10gforgagdiscussion.)
9-10.
Agpersonnelgdepartmentgprovidesgitsgservicesgbygcompletinggagsetgofgactivitiesgusinggreso
urces.gIngthisgway,gimplementinggactivity-
basedgcostinggingangadministrativegfunctiongisgthegsamegasgimplementinggitgingagmanufactu
ringgfirm.gHowever,gthegproductsgandgactivitiesgmaygbegmuchghardergtogdefine,gmakinggitgl
essglikegagmanufacturinggenvironment.
9-11.
Complexitygaddsgcostsgbygrequiringgadditionalgresourcesgforgoverheadg(support)gactivitie
sgforgthegsamegvolume.gItgisgimportantgtogincludegcomplexitygingcostgsystemgdesignsgtogav
oidgspreadinggthegcostgofgcomplexitygacrossgbothgsimplegandgcomplexgproducts.
484 FundamentalsgofgCostgAccounting
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
,9-12.
Thegtwogquestionsgagmanagergmustganswergwhengimplementinggtime-drivengactivity-
gbasedgcostinggareg(1)gwhatgisgthegcostgofgthegresourcesgsuppliedgtogagdepartmentgandg(2)g
howgmuchgtimegitgtakesgtogcompletegthegvariousgactivitiesgofgthegdepartment.
9-13.
Timegequationsgallowgmanagersgtogadjustgthegtimegrequiredgforgactivitiesgforgselectedgcharacte
risticsgofgproductsgorgservices.
SolutionsgManual,gChapterg9 485
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
, Solutions to Critical Analysis and Discussion Questions
g g g g g g
9-14.
Directglaborgisgalreadygmeasured,gsognognewgdatagneedsgtogbegcollectedgtogusegitgasganga
llocationgbase.gIngaddition,gdirectglaborghistoricallygwasgthegmostgimportantgresourcegingm
anufacturing.
9-15.
Activity-
basedgcostinggdoesgnotgchangegthegprocessgforgdirectgcosts,gsogthegstatementgisgfalse.gFor
gindirectgcost,gitgisguncertain,gbecausegitgdependsgongthegcostgdriversgusedgandgthegdiversit
ygingthegprocesses.gForgprocessesgthatgaregusedgingthegsamegwaygforgallgproducts,gthegpart
iculargallocationgprocessgisgnotgthatgimportant.
9-16.
Disagree.gThegservicesgingagbusinessgschool,gasginganygservicegbusiness,grequiregactivitie
sg(preparinggclassrooms,gorganizinggrecruiting,getc.).gThegcostsgofgthegbusinessgschoolgca
ngbegassignedgtogthesegactivitiesgandgthengallocatedgtogservicesg(e.g.,gdegreegprograms)gu
singgappropriategcostgdriversg(e.g.,gnumbergofgstudents,gnumbergofgclasses,gnumbergofgfac
ulty,getc.).
9-17.
False.gActivity-basedgcostinggisgmostgusefulgwhengthegfirst-
stagegallocationgisgtogactivities,gnotgdepartments.gFurther,gangactivity-
basedgcostinggsystemgalsogusesgcostgdriversgthatgformgaghierarchygofgcosts,gasgappropriat
e,gwhereasgmostgdepartmentgallocationgcostinggsystemsgusegvolume-basedgcostgdrivers.
9-18.
Theregisgnogrulegthatgthegpricegchargedgforgagproductghasgtogexceedgitsgcost.gTheregmaygbeg
importantgmarketinggorgstrategicgreasonsgwhygagcompanygwantsgtogbegingagparticulargmark
et.gHowever,gtogensuregthatgthisgisgaggoodgdecision,gthegfirmgshouldghavegthegbestginformati
ongongcostgthatgitgcangget.gManaginggagcompanygbygfoolinggyourselfgintogthinkinggsomethin
ggcostsglessgthangitgdoesgisgnotgsmart.
9-19.
Activity-
basedgcostinggisglikeganygotherginformationgsystem;gitghasgitsgbenefitsgandgitsgcosts.gItgisgno
tgappropriategingallgsituationsgandgthegbenefitsgmaygnotgjustifygitsgcostsgingothers.
486 FundamentalsgofgCostgAccounting
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
Activity-Based Costing g
Solutions to Review Questions
g g g
9-1.
Commongallocationgbasesgaregdirectglabor-hours,gdirectglaborgcosts,gandgmachine-
hours.gSomewhatglessgcommongisgdirectgmaterialgcosts.
9-2.
Thegtermg“deathgspiral”grefersgtogagprocessgthatgbeginsgbygattemptinggtogincreasegpricesgto
gmeetgreportedgproductgcosts.gHighergpricesgreducegdemand,gleadinggtogproductiongandgst
illghighergreportedgproductgcosts.gEventually,gthegfirmglosesgproductsgasgthegmarketgwillgnot
gsupportgthemgandggoesgoutgofgbusiness.gThegdeathgspiralgisgnotgthegresultgofgthegcostgsyst
emgdirectly,gbutgthegresultgofgmanagersgmakinggdecisionsg(ingthisgcasegraisinggprices)gbas
edgongthegcostgsystemgthatgisg(oftenginaccurately)gsignalinggincreasedgcosts.
9-3.
False.gDepartmentgallocationgisgagtwo-stagegprocess,gsogthegfirst-
stagegassignmentgofgcostsgandgthegchoicegofgcostgdriversgaffectsgthegallocationgofgcostsgtog
products.gThegtotalgproductgcostsgaregthegsamegundergeithergapproach,gbutgthegindividualg
productgcostsgdiffer.gThisgcangaffectgthegdecisionsgmanagersgmakegregardinggindividualgpr
oducts.
9-4.
Mostgcompaniesgproducegmultiplegproductsgandgsimplygaddinggthemgupgdoesgnotgaccount
gforgdifferencesgingcomplexitygofgthegusegofgresources.gAsgangextremegexample,gsupposega
gcompanygproducedgairplanesgandgstaplers.gAllocatinggoverheadgongthegbasisgofgunitsgwou
ldgassigngthegsamegoverheadgcostgtogagstaplergandgagplane.
9-5.
Thegcostsgincludegthegsystemsgandgthegsoftware,gbutgthegmostgimportantgcostgisgmanagers
’gtime.gManagersgneedgtogmakegmanygdecisionsgaboutgthegactivitiesgandgthegcostgdriversga
ndgmanagersgneedgtogmakegmanygofgthegfirst-
stagegallocations.gThegbenefitsgcomegfromghavinggbetterginformationgaboutgthegusegofgres
ourcesgandgbetterginformationgforgdecisions.
SolutionsgManual,gChapterg9 483
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
,9-6.
1. Identifygactivitiesgthatgconsumegresources.
2. Identifygthegcostgdrivergassociatedgwithgeachgactivity.
3. Computegagcostgrategpergactivitygunitg(e.g.,grategpergsetup,grategpergpart,grategperg
machine-hour).
4. Allocategcostsgtogproductsgbygmultiplyinggthegactivitygrategtimesgthegvolumegofgactivitygc
onsumedgbygthegproduct.
9-7.
Thegcostghierarchygisgagclassificationgofgcostsgintoggeneralglevelsgofgactivity.gCostsgassigne
dgtogthegdifferentglevelsgofgtheghierarchygtendgtogbegrelatedgtogthegvolumegofgthegactivitygvolu
me.
9-8.
False.gWhilegthegtotalgcostgallocatedgisgthegsame,gthegreportedgcostsgforgindividualgproduct
sgwillgdiffer.gBecausegmanagersgmakegdecisionsgatgthegproductglevel,gitgisgimportantgthatgth
egreportedgcostsgreflect,gtogthegextentgpossible,gthegusegofgresourcesgbygthegproducts.
9-9.
Activity-
basedgcostinggwillgbenefitgmostgcompaniesgwithghighgoverheadgcostsgandgdiversegproductsg
andgprocesses.gIfgtheregisglittlegoverheadgorgifgtheregisgagsinglegproduct,gthegallocationgproce
ssgwillgnotgresultgingsignificantlygdifferentgproductgcosts.g(Evengifgtheregaregonlygagfew,grelativ
elyghomogeneousgproducts,gactivity-
basedgcostinggmaygbegusefulgforgcostgmanagement.gSeegchapterg10gforgagdiscussion.)
9-10.
Agpersonnelgdepartmentgprovidesgitsgservicesgbygcompletinggagsetgofgactivitiesgusinggreso
urces.gIngthisgway,gimplementinggactivity-
basedgcostinggingangadministrativegfunctiongisgthegsamegasgimplementinggitgingagmanufactu
ringgfirm.gHowever,gthegproductsgandgactivitiesgmaygbegmuchghardergtogdefine,gmakinggitgl
essglikegagmanufacturinggenvironment.
9-11.
Complexitygaddsgcostsgbygrequiringgadditionalgresourcesgforgoverheadg(support)gactivitie
sgforgthegsamegvolume.gItgisgimportantgtogincludegcomplexitygingcostgsystemgdesignsgtogav
oidgspreadinggthegcostgofgcomplexitygacrossgbothgsimplegandgcomplexgproducts.
484 FundamentalsgofgCostgAccounting
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
,9-12.
Thegtwogquestionsgagmanagergmustganswergwhengimplementinggtime-drivengactivity-
gbasedgcostinggareg(1)gwhatgisgthegcostgofgthegresourcesgsuppliedgtogagdepartmentgandg(2)g
howgmuchgtimegitgtakesgtogcompletegthegvariousgactivitiesgofgthegdepartment.
9-13.
Timegequationsgallowgmanagersgtogadjustgthegtimegrequiredgforgactivitiesgforgselectedgcharacte
risticsgofgproductsgorgservices.
SolutionsgManual,gChapterg9 485
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
, Solutions to Critical Analysis and Discussion Questions
g g g g g g
9-14.
Directglaborgisgalreadygmeasured,gsognognewgdatagneedsgtogbegcollectedgtogusegitgasganga
llocationgbase.gIngaddition,gdirectglaborghistoricallygwasgthegmostgimportantgresourcegingm
anufacturing.
9-15.
Activity-
basedgcostinggdoesgnotgchangegthegprocessgforgdirectgcosts,gsogthegstatementgisgfalse.gFor
gindirectgcost,gitgisguncertain,gbecausegitgdependsgongthegcostgdriversgusedgandgthegdiversit
ygingthegprocesses.gForgprocessesgthatgaregusedgingthegsamegwaygforgallgproducts,gthegpart
iculargallocationgprocessgisgnotgthatgimportant.
9-16.
Disagree.gThegservicesgingagbusinessgschool,gasginganygservicegbusiness,grequiregactivitie
sg(preparinggclassrooms,gorganizinggrecruiting,getc.).gThegcostsgofgthegbusinessgschoolgca
ngbegassignedgtogthesegactivitiesgandgthengallocatedgtogservicesg(e.g.,gdegreegprograms)gu
singgappropriategcostgdriversg(e.g.,gnumbergofgstudents,gnumbergofgclasses,gnumbergofgfac
ulty,getc.).
9-17.
False.gActivity-basedgcostinggisgmostgusefulgwhengthegfirst-
stagegallocationgisgtogactivities,gnotgdepartments.gFurther,gangactivity-
basedgcostinggsystemgalsogusesgcostgdriversgthatgformgaghierarchygofgcosts,gasgappropriat
e,gwhereasgmostgdepartmentgallocationgcostinggsystemsgusegvolume-basedgcostgdrivers.
9-18.
Theregisgnogrulegthatgthegpricegchargedgforgagproductghasgtogexceedgitsgcost.gTheregmaygbeg
importantgmarketinggorgstrategicgreasonsgwhygagcompanygwantsgtogbegingagparticulargmark
et.gHowever,gtogensuregthatgthisgisgaggoodgdecision,gthegfirmgshouldghavegthegbestginformati
ongongcostgthatgitgcangget.gManaginggagcompanygbygfoolinggyourselfgintogthinkinggsomethin
ggcostsglessgthangitgdoesgisgnotgsmart.
9-19.
Activity-
basedgcostinggisglikeganygotherginformationgsystem;gitghasgitsgbenefitsgandgitsgcosts.gItgisgno
tgappropriategingallgsituationsgandgthegbenefitsgmaygnotgjustifygitsgcostsgingothers.
486 FundamentalsgofgCostgAccounting
Copyrightg2020g©gMcGraw-
HillgEducation.gAllgrightsgreserved.gNogreproductiongorgdistributiongwithoutgth
egpriorgwrittengconsentgofgMcGraw-HillgEducation.
