chapter 4

chapter 4 - and services by means of cost drivers...

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John Rubinetti AC 12 2/4/08 Chapter 4 Questions 2. The recent industrial US events that reduced the usefulness of direct labor as the primary basis for allocating overhead to products were the advances in computerized systems, technological innovation, global competition and automation. Since then the amount of direct labor used in many industries has greatly decreased; and total overhead costs resulting from depreciation on expensive equipment and machinery, repairs, utilities, and maintenance have drastically increased. 5. a) The principle differences between activity based costing and traditional based costing are that activity based costing or ABC uses smaller, more specified cost buildups that are accumulated based on activities. In addition, activity based costing allocates overhead to multiple activity cost pools and, then, assigns the activity cost pools to products
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Unformatted text preview: and services by means of cost drivers. Traditional based cost systems use a single overhead pool, which is a simple accumulation of costs that are not identifiable as product part costs or labor. b) The assumptions that must be met for ABC costing to be useful are. Product lines differ in volume and manufacturing complexity. Product lines are numerous, diverse, and they require differing degrees of support services. Manufacturing process or the number of products has changed significantly. Overhead costs constitute a significant portion of total costs. Production or marketing managers are ignoring data provided by the existing system and are instead using bootleg costing data or other alternative data when pricing or making other product decisions....
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chapter 4 - and services by means of cost drivers...

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