Chapter 8 - Activity-Based Costing: A Tool to Aid Decision...

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Accounting 2102 1 Activity-Based Costing: A Tool to Aid Decision Making Chapter Eight
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2 Accounting 2102 Traditional Product Costing System Job Order Costing System Calculation of product cost ∑ DM + DL + MOH Calculation of MOH Volume based costing systems Distortion of product costs Single, volume based cost driver are there additional manufacturing overhead allocation systems?
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3 Accounting 2102 Activity Based Costing System ABC refines the way we pool and allocate our indirect costs . . . What are the goals of ABC? Truer cost for our products Help us make better decisions What are the indirect cost pools based on? activities Step 1 . . . identify key activities and assign indirect costs Step 2 . . . select cost driver/allocation base Step 3 . . . allocate manufacturing overhead to jobs
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4 Accounting 2102 BIG picture Why does ABC do a better job of giving us a “truer” cost than a traditional costing system? recognizes that not all costs are unit level costs recognizes that products consume resources differently Why doesn’t a traditional system work all that well? thinks all costs are unit level ignores that products consumer resources differently
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5 Accounting 2102 Step 1 . . . identify key activities and assign costs every activity performed in a company comes at a COST to the company . . . 5 ways to describe activities
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This note was uploaded on 05/08/2008 for the course ACCT 2102 taught by Professor Farmer during the Spring '08 term at University of Georgia Athens.

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Chapter 8 - Activity-Based Costing: A Tool to Aid Decision...

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