Activity-Based Costing:

A Tool to Aid Decision Making

Chapter 7

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
 7-2

Background
Plant overhead is applied to production in a
rational systematic manner, using some type of
averaging. There are a variety of methods to
accomplish this goal.
These methods often involve trade-offs between
simplicity and realism.

Simple Methods ↔ Complex Methods

Can be Inaccurate Usually more accurate
 7-3

Plantwide & Department Overhead

Calculations
Plantwide Overhead Rate:
Total Estimated Overhead ** / Total Estimated Base ***
** Obtain total of all overhead costs to be allocated.
*** Determine the best “base” – direct labor hours,
machine hours, etc.
This rate is used to allocate overhead costs to all products
Department Overhead Rate:
Similar concept except overhead cost pools and selected
base are obtained by department rather than plantwide.
 7-4

Example Of Plantwide & Department

Overhead Calculations (1 of 2)
For our example, let’s say we have two
departments, A and B with overhead costs of
$300,000 and $450,000, respectively.
The best base (the most likely cost driver) in
Department A is Direct Labor Hours and Machine
Hours in Department B.
 7-5

Example of Plantwide & Department

Overhead Calculations (2 of 2)
- Dept A Dept B Plantwide
Overhead $300,000 $450,000 $750,000
Direct Labor Hrs 8,000 7,000 15,000
Machine Hours 750 1,200 1,950
Allocation Rate-DLH $37.50 n/a $50.00
Allocation Rate-MH n/a $375.00 $384.62
 7-6

Broad Averaging
• Historically, firms produced a limited variety of goods
and at the same time, their indirect costs were relatively
small.
• Allocating overhead costs was simple: use broad
averages to allocate costs uniformly regardless of how
they are actually incurred.
▫ Generally known as “Peanut-butter costing” (perhaps
because it is spread evenly??)
• The end-result:
▫ Products using fewer resources are overcosted and
products using more resources are undercosted.
 7-7

Over And Undercosting - Defined

• OVERCOSTING occurs when a product
consumes a low level of resources but is
allocated high costs per unit.
• UNDERCOSTING occurs when a product
consumes a high level of resources but is
allocated low costs per unit.
 7-8

Product Cost
Cross-Subsidization (1 of 4)
• If a company undercosts one of its
products, it will overcost at least one of its
other products.
• The overcosted product absorbs too much
cost, making it seem less profitable than it
really is.
• The undercosted product is left with too
little cost, making it seem more profitable
than it really is.
 7-9

Product Cost
Cross-Subsidization (2 of 4)
CONSIDER THIS:
•If you were using cost to determine price,
what effect would this have?
•If you were looking at product profitability to
determine marketing focus, what result?
•Managers use product costs everyday to
make decisions. If the cost is wrong, so will
be the decision.
 7-10

Product Cost
Cross-subsidization (3 of 4)
• Let’s look again at our example:
• Dept A has $300,000 Overhead and uses DLH
(8,000)
• Dept B has $450,000 Overhead and uses MH
(1,200)
• Job 457 incurs 1,000 DLH in Dept A and 1,000
DLH in Dept B; 50 MH in Dept A and 75 MH in
Dept B
 7-11

Product Cost
Cross-subsidization (4 of 4)
Explanation Dept A Dept B Total Plantwide

1000*$37.50 $37,500.00 n/a n/a n/a

75*$375.00 n/a $28,125.00 n/a n/a

Total Dept n/a n/a $65,625 n/a

PW/DLH n/a n/a n/a $100,000.00

2,000*$50

PW/MH n/a n/a n/a $48,077.50

125*$384.62

How would this information affect your decisions regarding Job 457?
 7-12

Traditional Costing vs. ABC

Costing
ABC is designed to
provide managers with ABC is a
cost information for good supplement
strategic and other to our traditional
cost system
decisions that potentially I agree!
affect capacity, and
therefore, affect “fixed”
as well as variable
costs.
 7-13

Baxter Battery Example – Traditional Costing

Manufacturing
Manufacturing overhead
overhead is
is allocated
allocated to
to products
products using
using
aa single
single plantwide
plantwide overhead
overhead rate
rate based
based on
on machine
machine hours.
hours.
 7-14

Product Margins Computed Using the Traditional

Cost System
The first step in computing product margins is to
gather each product’s sales and direct cost data.
SureStarts LongLifes Total
Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
 7-15

Baxter Battery Information

SureStart
SureStart
1.
1. 800,000
800,000 batteries
batteries ordered
ordered with
with 4,000
4,000 separate
separate orders.
orders.
2.
2. Each
Each SureStart
SureStart requires
requires 36
36 minutes
minutes ofof machine
machine
time
time for
for aa total
total of
of 480,000
480,000 machine-hours.
machine-hours.

LongLife
LongLife
1.
1. 400,000
400,000 batteries
batteries ordered
ordered with
with 6,000
6,000 separate
separate orders.
orders.
2.
2. 4,000
4,000 custom
custom designs
designs prepared.
prepared.
3.
3. Each
Each LongLife
LongLife requires
requires 48
48 minutes
minutes of
of machine
machine
time
time for
for aa total
total of
of 320,000
320,000 machine-hours.
machine-hours.
 7-16

Product Margins Computed Using the Traditional

Cost System
The second step in computing product margins is
to compute the plantwide overhead rate.
Manufacturing Overhead Costs at Baxter Battery
Production Department
Indirect factory wages $ 6,000,000
Factory equipment depreciation 3,500,000
Factory utilities 2,500,000
Factory building lease 2,000,000
Total manufacturing overhead $ 14,000,000

Plantwide manufacturing $14,000,000

= = $17.50 per machine-hour
overhead rate 800,000 MH

Machine-hours
SureStarts (800,000 @ 0.60 hours) 480,000
LongLifes (400,000 @ 0.80 hours) 320,000
Total machine-hours 800,000
 7-17

Product Margins Computed Using the

Traditional Cost System
The third step in computing product margins is
allocate manufacturing overhead to each product.
Machine Overhead Overhead
Hours Rate Allocated
SureStarts 480,000 $ 17.50 $ 8,400,000
LongLifes 320,000 17.50 5,600,000
Total overhead allocated to products $ 14,000,000

480,000 hours × $17.50 per hour = $8,400,000

 7-18

Product Margins Computed Using the

Traditional Cost System
The fourth step is to actually compute the
product margins.

SureStarts LongLifes Total

Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Cost of goods sold
Direct materials $ 9,000,000 $ 6,000,000 $ 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
Manufacturing overhead 8,400,000 24,400,000 5,600,000 16,600,000 14,000,000 41,000,000
Product margin $ 6,900,000 2,100,000 9,000,000
Selling and administrative 11,000,000
Nett operating
operating income
loss $ (2,000,000)

Shipping expenses $ 3,000,000

Marketing expenses 2,000,000
General administrative expenses 6,000,000
$ 11,000,000
 7-19

Learning Objective 1

Understand activity-
based costing and how it
differs from a traditional
costing system.
 7-20

Differences between Traditional Absorption Costing

and Activity-Based Costing

ABC
ABC differs
differs from
from traditional
traditional cost
cost accounting
accounting in
in three
three ways.
ways.

Manufacturing Nonmanufacturing
costs costs

Traditional ABC
product costing product costing

 ABC assigns both types of costs to products.

 7-21

Differences between Traditional Absorption Costing

and Activity-Based Costing

ABC
ABC differs
differs from
from traditional
traditional cost
cost accounting
accounting in
in three
three ways.
ways.

Manufacturing Nonmanufacturing
costs costs

Some
Mo
st, b
All

not ut
all
Traditional ABC
product costing product costing

 ABC does not assign all manufacturing costs to products.

 7-22

Differences between Traditional Absorption Costing

and Activity-Based Costing

ABC
ABC differs
differs from
from traditional
traditional cost
cost accounting
accounting in
in three
three ways.
ways.
 7-23

Differences between Traditional Absorption Costing

and Activity-Based Costing

ABC
ABC differs
differs from
from traditional
traditional cost
cost accounting
accounting in
in three
three ways.
ways.
Level of complexity

Activity–Based
Activity–Based
Costing
Costing

Departmental
Departmental
Overhead
Overhead
Rates
Rates
Plantwide
Plantwide
Overhead
Overhead
Rate
Rate

Number of cost pools

 ABC uses more cost pools.
 7-24

Differences between Traditional Absorption Costing

and Activity-Based Costing

ABC
ABC differs
differs from
from traditional
traditional cost
cost accounting
accounting in
in three
three ways.
ways.

Each
Each ABC
ABC cost
cost pool
pool has
has its
its
own
own unique
unique measure
measure of
of activity.
activity.

Traditional
Traditional cost
cost systems
systems usually
usually rely
rely
on
on volume
volume measures
measures such
such as
as direct
direct labor
labor
hours
hours and/or
and/or machine
machine hours
hours to
to allocate
allocate
all
all overhead
overhead costs
costs to
to products.
products.

 ABC uses more cost pools.

 7-25

How Costs are Treated Under Activity–Based

Costing

An event that causes the

Activity consumption of overhead
resources.

A “cost bucket” in which

Activity costs related to a single
Cost Pool activity measure are
accumulated.
$$
$
$ $
$
 7-26

How Costs are Treated Under Activity–Based

Costing

The term cost driver

Activity
is also used to refer to
Measure
an activity measure.

An allocation base
in an activity-based
costing system.
 7-27

How Costs are Treated Under Activity–Based

Costing

Two common types of activity measures:

Transaction Duration
driver driver

Simple count A measure

of the number of of the amount
times an activity of time needed
occurs. for an activity.
 7-28

How Costs are Treated Under Activity–Based

Costing

ABC defines
five levels of activity
that largely do not relate
to the volume of units
produced.

Traditional
Traditional cost
cost systems
systems usually
usually rely
rely on
on volume
volume
measures
measures such
such as
as direct
direct labor
labor hours
hours and/or
and/or machine
machine
hours
hours to
to allocate
allocate all
all overhead
overhead costs
costs to
to products.
products.
 7-29

How Costs are Treated Under

Activity–Based Costing
Unit-Level Batch-Level
Activity Activity

Manufacturing
companies typically combine
their activities into five
classifications.

Product-Level Customer-Level
Activity Organization- Activity
sustaining
Activity
 7-30

Baxter Battery – An ABC Example

Baxter Battery Company
Income Statement
Year Ended December 31, 2014

Sales $ 50,000,000
Cost of goods sold
Direct materials $ 15,000,000
Direct labor 12,000,000
Manufacturing overhead 14,000,000 41,000,000
Gross margin 9,000,000
Selling and administrative expenses
Shipping expenses 3,000,000
Marketing expenses 2,000,000
General administrative expenses 6,000,000 11,000,000
Net operating income
loss $ (2,000,000)

Manufacturing
Manufacturing overhead
overhead is
is allocated
allocated to
to products
products using
using
aa single
single plantwide
plantwide overhead
overhead rate
rate based
based on
on machine
machine hours.
hours.
 7-31

 Define Activities, Activity Cost Pools, and Activity Measures

At Baxter Battery, the ABC team selected the following
activity cost pools and activity measures:
 7-32

 Define Activities, Activity Cost Pools, and Activity Measures

•• Customer
Customer Orders
Orders -- assigned
assigned allall costs
costs of
of resources
resources
that
that are
are consumed
consumed by by taking
taking and
and processing
processing
customer
customer orders.
orders.
•• Design
Design Changes
Changes -- assigned
assigned allall costs
costs of
of resources
resources
consumed
consumed by by customer
customer requested
requested design
design changes.
changes.
•• Order
Order Size
Size -- assigned
assigned all
all costs
costs of
of resources
resources
consumed
consumed as as aa consequence
consequence of of the
the number
number ofof units
units
produced.
produced.
•• Customer
Customer Relations
Relations –– assigned
assigned allall costs
costs associated
associated
with
with maintaining
maintaining relations
relations with
with customers.
customers.
•• Other
Other –– assigned
assigned all
all organization-sustaining
organization-sustaining costs
costs
and
and unused
unused capacity
capacity costs
costs
 7-33

Learning Objective 2

Assign costs to cost

pools using a first-stage
allocation.
 Assign Overhead Costs to Activity Cost Pools 7-34
 Assign Overhead Costs to Activity Cost Pools 7-35

Direct materials, direct labor, and shipping are excluded

because Baxter Battery’s existing cost system can directly
trace these costs to products or customer orders.
 7-36

 Assign Overhead Costs to

Activity Cost Pools
At Baxter Battery the following distribution of resource
consumption across activity cost pools is determined.
 7-37

 Assign Overhead Costs to

Activity Cost Pools

Indirect
Indirect factory
factory wages
wages $6,000,000
$6,000,000
Percent
Percent consumed
consumed by
by customer
customer orders
orders 30%
30%
$1,800,000
$1,800,000
 7-38

 Assign Overhead Costs to

Activity Cost Pools

Factory
Factory equipment
equipment depreciation
depreciation $3,500,000
$3,500,000
Percent
Percent consumed
consumed by
by customer
customer orders
orders 20%
20%
$$ 700,000
700,000
 7-39

 Assign Overhead Costs to

Activity Cost Pools
 7-40

Learning Objective 3

Compute activity
rates for cost pools.
 7-41

 Calculate Activity Rates

The ABC team determines that Baxter Battery will
have these total activities for each activity cost
pool:
▫ 10,000 customer orders,
▫ 4,000 design changes,
▫ 800,000 machine-hours,
▫ 2,000 customers served.

Now
Now the
the team
team can
can compute
compute the the individual
individual
activity
activity rates
rates by
by dividing
dividing the
the total
total cost
cost for
for
each
each activity
activity by
by the
the total
total activity
activity levels.
levels.
 7-42

 Calculate Activity Rates

 7-43

Activity–Based Costing at Baxter

Battery
Direct Direct Shipping
Overhead Costs
Materials Labor Costs

Traced Traced Traced

Cost Objects:
Products, Customer Orders, Customers
 7-44

Activity–Based Costing at Baxter

Battery
Direct Direct Shipping
Overhead Costs
Materials Labor Costs

First-Stage Allocation

Customer Design Order Customer

Other
Orders Changes Size Relations

Cost Objects:
Products, Customer Orders, Customers
 7-45

Activity–Based Costing at Baxter

Battery
Direct Direct Shipping
Overhead Costs
Materials Labor Costs

First-Stage Allocation

Customer Design Order Customer

Other
Orders Changes Size Relations

Second-Stage Allocations

$/Order $/Change $/MH $/Customer

Cost Objects:
Unallocated
Products, Customer Orders, Customers
 7-46

Learning Objective 4

Assign costs to a cost

object using a second-
stage allocation.
 7-47

 Assigning Overhead to Products

Baxter Battery Information
SureStart
SureStart
1.
1. Requires
Requires no no new
new design
design resources.
resources.
2.
2. 800,000
800,000 batteries
batteries ordered
ordered with
with 4,000
4,000 separate
separate orders.
orders.
3.
3. Each
Each SureStart
SureStart requires
requires 36
36 minutes
minutes ofof machine
machine
time
time for
for aa total
total of
of 480,000
480,000 machine-hours.
machine-hours.

LongLife
LongLife
1.
1. Requires
Requires new new design
design resources.
resources.
2.
2. 400,000
400,000 batteries
batteries ordered
ordered with
with 6,000
6,000 separate
separate orders.
orders.
3.
3. 4,000
4,000 custom
custom designs
designs prepared.
prepared.
4.
4. Each
Each LongLife
LongLife requires
requires 48
48 minutes
minutes of
of machine
machine
time
time for
for aa total
total of
of 320,000
320,000 machine-hours.
machine-hours.
 7-48

 Assigning Overhead to Products

 7-49

Assigning Overhead to Customers

Let’s take a look at how Baxter Battery’s system works for just
one of the 2,000 customers – Acme Auto Parts who placed
a total of twelve orders. Note that the four orders for
LongLifes required a design change.

Orders
Orders
1.
1. Eight
Eight orders
orders for
for 60
60 SureStarts
SureStarts per
per order.
order.
2.
2. Four
Four orders
orders for
for 50
50 LongLifes
LongLifes per
per order.
order. 8 orders * 60 units *
0.6 hours
(32minutes)

Machine-hours
Machine-hours
1.
1. The
The 480
480 SureStarts
SureStarts required
required 288
288 machine-hours.
machine-hours.
2.
2. The
The 200
200 LongLifes
LongLifes required
required 160
160 machine
machine hours.
hours.

4 orders * 50 units *
0.8 hours (48
minutes)
 7-50

Assigning Overhead to Customers

288 + 160 machine hours

 7-51

Learning Objective 5

Use activity-based
costing to compute
product and customer
margins.
 7-52

 Prepare Management Reports

Product Margin Calculations
The first step in computing product margins is to
gather each product’s sales and direct cost data.
SureStarts LongLifes Total
Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
Shipping 2,000,000 1,000,000 3,000,000
 7-53

 Prepare Management Reports

Product Margin Calculations
The second step in computing product margins is to
incorporate the previously computed activity-based
cost assignments pertaining to each product.

SureStarts LongLifes Total

Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
Shipping 2,000,000 1,000,000 3,000,000
ABC cost assignments
Customer orders 1,808,000 2,712,000 4,520,000
Design changes 3,040,000 3,040,000
Order size 3,120,000 2,080,000 5,200,000

6000 orders*$452 per order

 7-54

 Prepare Management Reports

Product Margin Calculations
The third step in computing product margins is to deduct
each product’s direct and indirect costs from sales.
SureStarts LongLifes
Sales $ 31,300,000 $ 18,700,000
Costs
Direct material $ 9,000,000 $ 6,000,000
Direct labor 7,000,000 5,000,000
Shipping 2,000,000 1,000,000
Customer orders 1,808,000 2,712,000
Design changes 3,040,000
Order size 3,120,000 2,080,000
Total cost 22,928,000 19,832,000
Product margin $ 8,372,000 $ (1,132,000)
 7-55

 Prepare Management Reports

Product Margin Calculations
The product margins can be reconciled with the
company’s net operating income as follows:

SureStarts LongLifes Total

Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Total costs 22,928,000 19,832,000 42,760,000
Product margins $ 8,372,000 $ (1,132,000) $ 7,240,000

Less costs not assigned to products:

Customer relations 3,080,000
Other 6,160,000
Total 9,240,000
Nett operating income
loss $ (2,000,000)
 7-56

 Prepare Management Reports

Customer Margin Analysis
The first step in computing Acme Auto Parts’ customer
margin is to gather its sales and direct cost data.

Acme Auto
Parts
Sales $ 29,200
Direct costs
Direct material 7,500
Direct labor 6,700
Shipping 1,700
 7-57

 Prepare Management Reports

Customer Margin Analysis
The second step is to incorporate Acme Auto Parts’
previously computed activity-based cost assignments.
Acme Auto
Parts
Sales $ 29,200
Direct costs
Direct material 7,500
Direct labor 6,700
Shipping 1,700
ABC cost assignments
Customer orders 5,424
Product design 3,040
Order size 2,912
Customer relations 1,540
 7-58

 Prepare Management Reports

Customer Margin Analysis
The third step is to compute Acme Auto Parts’ customer
margin of $384 by deducting all its direct and indirect
costs from its sales.
Acme Auto Parts
Sales $ 29,200
Direct costs
Direct material $ 7,500
Direct labor 6,700
Shipping 1,700
Customer orders 5,424
Product design 3,040
Order size 2,912
Customer relations 1,540 28,816
Customer margin $ 384
 7-59

Product Margins Computed Using the

Traditional Cost System
The first step in computing product margins is to
gather each product’s sales and direct cost data.
SureStarts LongLifes Total
Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
 7-60

Product Margins Computed Using the

Traditional Cost System
The second step in computing product margins is
to compute the plantwide overhead rate.
Manufacturing Overhead Costs at Baxter Battery
Production Department
Indirect factory wages $ 6,000,000
Factory equipment depreciation 3,500,000
Factory utilities 2,500,000
Factory building lease 2,000,000
Total manufacturing overhead $ 14,000,000

Plantwide manufacturing $14,000,000

= = $17.50 per machine-hour
overhead rate 800,000 MH

Machine-hours
SureStarts (800,000 @ 0.60 hours) 480,000
LongLifes (400,000 @ 0.80 hours) 320,000
Total machine-hours 800,000
 7-61

Product Margins Computed Using the

Traditional Cost System
The third step in computing product margins is
allocate manufacturing overhead to each product.
Machine Overhead Overhead
Hours Rate Allocated
SureStarts 480,000 $ 17.50 $ 8,400,000
LongLifes 320,000 17.50 5,600,000
Total overhead allocated to products $ 14,000,000

480,000 hours × $17.50 per hour = $8,400,000

 7-62

Product Margins Computed Using the

Traditional Cost System
The fourth step is to actually compute the
product margins.

SureStarts LongLifes Total

Sales $ 31,300,000 $ 18,700,000 $ 50,000,000
Cost of goods sold
Direct materials $ 9,000,000 $ 6,000,000 $ 15,000,000
Direct labor 7,000,000 5,000,000 12,000,000
Manufacturing overhead 8,400,000 24,400,000 5,600,000 16,600,000 14,000,000 41,000,000
Product margin $ 6,900,000 2,100,000 9,000,000
Selling and administrative 11,000,000
Nett operating
operating income
loss $ (2,000,000)

Shipping expenses $ 3,000,000

Marketing expenses 2,000,000
General administrative expenses 6,000,000
$ 11,000,000
 7-63

Differences Between ABC and

Traditional Product Costs
SureStarts LongLifes
Product margins – traditional $ 6,900,000 $ 2,100,000
Product margins – ABC 8,372,000 (1,132,000)
Change in reported margins $ 1,472,000 $ (3,232,000)

The traditional cost The traditional cost

system overcosts the system undercosts the
SureStarts and reports LongLifes and reports
a lower product a higher product
margin for this product. margin for this product.
 7-64

Differences Between ABC and

Traditional Product Costs
There are three reasons why the
reported product margins for the two
costing systems differ from one another.

Traditional costing allocates all manufacturing

overhead to products. ABC costing only assigns
manufacturing overhead costs consumed by
products to those products.
 7-65

Differences Between ABC and

Traditional Product Costs
There are three reasons why the
reported product margins for the two
costing systems differ from one another.

 Traditional costing allocates all manufacturing

overhead costs using a volume-related allocation
base. ABC costing also uses non-volume related
allocation bases.
 7-66

Differences Between ABC and

Traditional Product Costs
There are three reasons why the
reported product margins for the two
costing systems differ from one another.

 Traditional costing disregards selling and

administrative expenses because they are
assumed to be period expenses. ABC costing
directly traces shipping costs to products and
includes nonmanufacturing overhead costs caused
by products in the activity cost pools that are
assigned to products.
 7-67

Activity-Based Costing and External

Reporting

Most companies do not use ABC

for external reporting because . . .
1.
1. External
External reports
reports are
are less
less detailed
detailed than
than internal
internal
reports.
reports.
2.
2. ItIt may
may be
be difficult
difficult to
to make
make changes
changes to
to the
the company’s
company’s
accounting
accounting system.
system.
3.
3. ABC
ABC does
does not
not conform
conform to
to GAAP.
GAAP.
4.
4. Auditors
Auditors may
may be
be suspect
suspect ofof the
the subjective
subjective allocation
allocation
process
process based
based on
on interviews
interviews with
with employees.
employees.
 7-68

ABC Limitations
Substantial resources Resistance to
required to implement unfamiliar numbers
and maintain. and reports.

Desire to fully Potential

allocate all costs misinterpretation of
to products. unfamiliar numbers.

Does not conform to

GAAP. Two costing
systems may be needed.
 7-69

End of Chapter 7