A Company's Management Accountant Is Trying to Improve the Way

question 79

Multiple Choice

A company's management accountant is trying to improve the way costs are allocated within the company. Currently, several corporate expenses are grouped together and labeled "overhead." If the accountant wanted to use activity-based costing (ABC) to help solve the problem, what should she do?

• A) She should try to trace the departments' costs to their cost objects, and then charge each department based on those cost relationships.
• B) She should research how the company's competitors are allocating their costs, and then implement one of those strategies.
• C) She should look for bottlenecks within the production process, and try to eliminate them, thus reducing costs.
• D) She should examine the firm's value chain and apply target costing before adopting ABC.

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Definitions:

Market Price

The ongoing rate at which an asset or service is offered for buying or selling in a certain market.

Short Run

A period in economics during which at least one input or resource is fixed, limiting immediate capacity adjustments.

Zero Economic Profit

A condition in which a firm's total revenue equals its total costs, implying normal profit but no excess profit over what is considered normal in the industry.

Long Run

A period in economics where all factors of production and costs are variable, and firms can adjust all inputs as needed.