Chapter 7, part one

Chapter 7 part one - Changing Composition of Total Manufacturing Costs 100 Manufacturing overhead has increased Percent of total manufacturing

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Changing Composition of Changing Composition of Total Manufacturing Costs Total Manufacturing Costs Percent of total manufacturing costs 0 100 1900 1950 2000 Year Direct materials has increased Direct labor has decreased Manufacturing overhead has increased
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2 Functional-based Cost Systems Functional-based systems (unit-level) Based on volume measures, such as Direct labor hours Machine hours Two types Plantwide rates Departmental rates Often produce average costs that severely under- or overstate individual product costs
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TA’s go to Dinner Drinks Entrée Dessert Total Cayla $6.00 $8.00 $14.00 Roland $15.00 $12.00 $5.00 $32.00 Arwa $9.00 $10.00 $19.00 Yu-Chun $6.00 $12.00 $18.00 $83.00 $20.75
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The Concept of Activity Based Costing (ABC) Level of Complexity Overhead Allocation Plantwide Overhead Rate Departmental Overhead Rates Activity Based Costing
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5 Product Diversity Products consume overhead activities in systematically different proportions. Consumption Ratio --- Proportion of each activity consumed by a product.
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Cost Hierarchy Cost Hierarchy Unit level activities Unit level activities Non-unit level activities Non-unit level activities Batch level activities Batch level activities Product level activities Product level activities Facility level activities Facility level activities Activities that are performed each time a unit is produced. Activities that are not performed each time a unit of product is produced
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Activities and Cost Drivers:  Unit Level Activity Machining Maintenance  of machines Potential Cost Driver Machine hours, labor  hours or number of units  produced Machine hours This activity is performed for each unit of product produced and sold.
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Activities and Cost Drivers:  Product Level Activity Product  Testing Supervision Potential Cost Driver Number of change orders,  number of tests, hours of  testing time Number of supervision  hours This activity is performed to support each different product that can be produced.
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Activities and Cost Drivers:  Batch Level Activity Purchasing Receiving Machine setups Customer orders
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This note was uploaded on 05/09/2008 for the course ACC 240 taught by Professor Karengeiger during the Fall '07 term at ASU.

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Chapter 7 part one - Changing Composition of Total Manufacturing Costs 100 Manufacturing overhead has increased Percent of total manufacturing

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