1.Profit margin equals a product’s gross margin less the cost of capacity resources needed to support its production.
2.Profit margin is the appropriate measure for evaluating long-term profitability.
3.When allocating capacity costs to products, controllable and non-controllable cost pools need to be allocated to cost objects.
4.Activity-based costing (ABC) is an approach to determining product costs.
5.For a bank, maintaining the ATM computer network would be a product-level activity.
6.Because ABC is an allocation, it involves the two steps involved in any allocation – compute the allocation rate and multiply the rate by the number of cost driver units in a cost object.
7.To obtain the activity rate for each cost pool, divide the total cost in each pool by the unallocated cost.
8.Changing the allocation method never affects the reported profit margins for each product line.
9.Implementing a full-fledged activity-based costing system is often a costly, time-consuming, and tedious exercise.
10.A survey by the Institute of Management Accountants found that only 8% of responding firms in the U.S. use activity-based costing.