250_Notes_5A

250_Notes_5A - a) The limitations Still have some facility...

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ACCT 250 – ACCOUNTING FOR DECISION MAKING NOTES – CHAPTER 5A SPRING 2008 SUMMARY Here we learn the basic of how to use activity based costing, comparing it to volume- based costing, and look at some of the terminology. NOTES 1) The basics ??? a) The mechanics described Estimate the cost of something – an activity instead of factory or department Assign costs to activities using the POHR Calculate costs allocated to cost objects, typically products or services b) An example of the mechanics from our homework E5-34 2) Why do it? Volume based costing has some serious limitations o Very simple system which yields simple results – may accurately allocate some overhead costs, but not all o Likely to under-cost low-volume and over-cost high volume products o Inaccurate cost information may lead to bad decisions o No incentive for managers to manage indirect costs
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Unformatted text preview: a) The limitations Still have some facility level costs Still not all costs relevant to the product all period costs excluded ac653d3b304968289242ccd6350a6329863841d8.doc PAGE 1 OF 2 ACCT 250 ACCOUNTING FOR DECISION MAKING NOTES CHAPTER 5A SPRING 2008 ABC is VERY costly and time consuming to implement b) The benefits More accurate cost information which yields: o Better measures of profitability o Better decision making o Identification of improvement opportunities o More accurate cost estimation Greater ability to measure the cost of unused capacity 3) Determining the activity level Unit level Batch level Product level Facility level E5-30 ac653d3b304968289242ccd6350a6329863841d8.doc PAGE 2 OF 2...
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This note was uploaded on 04/18/2008 for the course ACCTG 250 taught by Professor Rabe during the Spring '08 term at Luther.

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250_Notes_5A - a) The limitations Still have some facility...

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