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ch04 - 4-1 CHAPTER Activity-Based Costing Costing 4-2...

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4 -1 Activity-Based Activity-Based Costing Costing CHAPTER CHAPTER
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4 -2 1. Discuss the importance of unit costs. 2. Describe functional-based costing approaches. 3. Explain why functional-based costing approaches may produce distorted costs. 4. Explain how an activity-based costing system works for product costing. Objectives Objectives Objectives Objectives After studying this After studying this chapter, you should chapter, you should be able to: be able to: After studying this After studying this chapter, you should chapter, you should be able to: be able to: continued continued continued continued
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4 -3 5. Provide a detailed description of how activities can be grouped into homogeneous sets to reduce the number of activity rates. 6. Describe activity-based customer and supplier costing. Objectives Objectives Objectives Objectives
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4 -4 Unit cost is the total cost associated with the units produced divided by the number of units produced. Unit cost is the total cost associated with the units produced divided by the number of units produced. Inventory valuation Income determination Providing input to a variety of decisions such as pricing, make or buy, and accept or reject special orders Unit cost is used for--
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4 -5 Product cost is often defined as the sum of direct materials, direct labor, and manufacturing overhead. This definition is required for external financial reporting. Product cost is often defined as the sum of direct materials, direct labor, and manufacturing overhead. This definition is required for external financial reporting.
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4 -6 Cost measurement consists of determining the dollar amounts of direct materials, direct labor, and overhead used in production. Cost measurement consists of determining the dollar amounts of direct materials, direct labor, and overhead used in production.
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4 -7 The process of associating the costs, once measured, with the units produced is called cost assignment. The process of associating the costs, once measured, with the units produced is called cost assignment.
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4 -8 Two possible measurement systems are actual costing and normal costing. Measurement Systems Measurement Systems Measurement Systems Measurement Systems Actual costing assigns the actual costs of direct materials, direct labor, and overhead to products. Normal costing assigns the actual costs of direct materials and direct labor to products; however, overhead cots are assigned to products using predetermined rates .
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4 -9 Measurement Systems Measurement Systems Measurement Systems Measurement Systems A predetermined overhead rate is a rate based on estimated data. A predetermined overhead rate is a rate based on estimated data. Budgeted (estimated) cost Estimated activity usage
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4 -10 Examples of Unit-Level Drivers Examples of Unit-Level Drivers Examples of Unit-Level Drivers Examples of Unit-Level Drivers Units produced Direct labor hours Direct labor dollars Machine-hours Direct material dollars
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4 -11 Units (of driver) Time Theoretical Practical Normal Expected actual
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4 -12 Functional-Based Costing: Plantwide Rate
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