What is (are) used in activity-based absorption costing to assign overhead costs to products?

Use these true or false questions to ensure you understand the difference between traditional absorption costing and activity based costing. This exercise should be completed after reading up to page 280 of Chapter 8.

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How does activity
What is are used in activity based absorption?
How does absorption costing assign overhead?
How do you assign overhead costs to each product?

Question 1: The differences between traditional absorption costing and activity based costing.

Activity based costing accumulates overhead costs in cost centres while traditional activity based costing accumulates overhead costs in cost pools.

	a)	True
	b)	False
You have correctly recognized that the definition is the wrong way round: activity based costing accumulates overhead costs in cost pools while traditional absorption costing accumulates overhead costs in cost centres. Page reference: 279-280 This statement is false. Activity based costing accumulates overhead costs in cost pools while traditional absorption costing accumulates overhead costs in cost centres. Page reference: 279-280 Your answer has been saved.

Question 2: The differences between traditional absorption costing and activity based costing.

Activity based costing works well in allocating overhead costs to mass produced, indistinguishable products.

	a)	True
	b)	False
You have correctly recognized that it is traditional absorption costing that works well in allocating overhead costs to mass produced, indistinguishable products. It is this problem that activity based costing seeks to overcome by recognizing that activities, rather than machine or labour hours, drive overhead costs and by trying to allocate overhead costs more fairly to those products that consume more or fewer activities. Page reference: 279-280 This statement is false. Traditional absorption costing works well in allocating overhead costs to mass produced, undifferentiated products. It is this problem that activity based costing seeks to overcome by recognizing that activities, rather than machine or labour hours, drive overhead costs and by trying to allocate overhead costs more fairly to those products that consume more or fewer activities. Page reference: 279-280 Your answer has been saved.

Question 3: The differences between traditional absorption costing and activity based costing.

Activity based costing uses cost drivers to allocate overhead costs to products and services.

	a)	True
	b)	False
This is exactly the way in which activity based costing allocates overhead costs to products and services. Page reference: 279-280 This statement is true. Activity based costing does use cost drivers to allocate overhead costs to products and services. Page reference: 279-280 Your answer has been saved.

Question 4: The differences between traditional absorption costing and activity based costing.

Activity based costing allocates overheads to products and services on the basis of machine or labour hours while traditional absorption costing allocates overheads to products and services on the basis of activities consumed.

	a)	True
	b)	False
You have correctly recognized that this statement is the wrong way round. Activity based costing allocates overheads to products and services on the basis of activities consumed while traditional absorption costing allocates overheads to products and services on the basis of machine or labour hours. Page reference: 279-280 This statement is false. The two halves of the statement are the wrong way round. Activity based costing allocates overheads to products and services on the basis of activities consumed while traditional absorption costing allocates overheads to products and services on the basis of machine or labour hours. Page reference: 279-280 Your answer has been saved.

Question 5: The differences between traditional absorption costing and activity based costing.

Traditional absorption costing allocates overhead costs to products on the basis of the normal level of production while activity based costing recognizes that activities cause costs.

	a)	True
	b)	False
This statement accurately describes aspects of both traditional absorption costing and activity based costing. Page reference: 279-280 This statement is true. This statement accurately describes aspects of both traditional absorption costing and activity based costing. Page reference: 279-280 Your answer has been saved.

How does activity

Overhead costs are allocated to products by multiplying the predetermined overhead rate for each activity (calculated in step 4) by the level of cost driver activity used by the product. The term applied overhead is often used to describe this process.

What is are used in activity based absorption?

Absorption costing assigns costs to individual units, whereas activity-based costing focuses on company activities as a central cost and then attempts to assign indirect costs to units.

How does absorption costing assign overhead?

Absorption costing allocates fixed overhead costs to a product whether or not it was sold in the period. This type of costing method means that more cost is included in the ending inventory, which is carried over into the next period as an asset on the balance sheet.

How do you assign overhead costs to each product?

To allocate the overhead costs, you first need to calculate the overhead allocation rate. This is done by dividing total overhead by the number of direct labor hours. This means for every hour needed to make a product, you need to allocate $3.33 worth of overhead to that product.

What is (are) used in activity-based absorption costing to assign overhead costs to products?

Question 1: The differences between traditional absorption costing and activity based costing.

Question 2: The differences between traditional absorption costing and activity based costing.

Question 3: The differences between traditional absorption costing and activity based costing.

Question 4: The differences between traditional absorption costing and activity based costing.

Question 5: The differences between traditional absorption costing and activity based costing.

How does activity

What is are used in activity based absorption?

How does absorption costing assign overhead?

How do you assign overhead costs to each product?

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