CMA Study Group

  • 1.  ABC Clarification required

    Posted 08-29-2013 02:52 PM
    This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
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    Dear All,

    Please find below my questions in ABC, and answer my following questions.

    All of the following are likely to be used as a cost allocation base in activity-based costing except the
    * Source: Retired ICMA CMA Exam Question    s

    a. number of vendors supplying the materials used to manufacture the product.
    b. cost of materials used to manufacture the product.
    c. units of materials used to manufacture the product.
    d. number of different materials used to manufacture the product.

    Feedback
    In an activity-based costing system, cost allocation bases typically include a number of different materials used to manufacture the product, the units of materials used to manufacture the product, and a number of vendors supplying the materials used to manufacture the product.
    The correct answer is B.

    But, I could not find activities with resource costs for Option A.

    1. Why not Answer A is correct as per the question...?
    2. Costs are assigned to cost objects, then How come Option B is correct..?
    3. Yes. Option C & D are part of activities assigned to cost objects.

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    Ganesan Sivalingam
    Accountant
    Sharqiyah Desalination Co SAOG
    Muscat, Sultanate of Oman
    Oman
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  • 2.  RE:ABC Clarification required

    Posted 08-30-2013 05:07 AM
    Dear Ganesan,

    Please find below my comments:

    In ABC, cost drivers are identified based on a cause an effect relationship. Which means that the cost being allocated should go up when the cost driver goes up. These generally physical relationships, like number of machine runs to machine set up cost. 

    Generally speaking, its very rare to find a cost which has "Material cost" as driver. Out of the four options given, its the least likely.

    Regarding option 1, vendor management cost can be a cost where the cost driver is the number of vendors.

    Hope this helps.

    Thanks,
    Ashutosh


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    Ashutosh Srivastava
    Other
    Bristlecone
    Mumbai
    India
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