An abc approach attempts to use cost drivers as the

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Unformatted text preview: these act ivit ies are built up to compute the costs of products, and services, and so on. Simple costing systems have one or a few indirect cost pools, irrespective of the heterogeneit y in the facilit y while ABC systems have mult iple indirect cost pools. An ABC approach attempts to use cost drivers as the allocat ion base for indirect costs, whereas a simple costing system generally does not. The ABC approach classifies as many indirect costs as direct costs as possible. A simple costing system has more indirect costs. 5­8 Four decisio ns for which ABC informat ion is useful are 1. pricing and product mix decisio ns, 2. cost reduction and process improvement decisio ns, 3. product design decisio ns, and 4. decisio ns for planning and managing activit ies. 5­9 No. Department indirect­cost rates are similar to activit y­cost rates if (1) a single activit y accounts for a sizable fraction o f the department’s costs, or (2) significant costs are incurred on different activit ies wit hin a depart ment but each activit y has the same cost­allocat ion base, or (3) significant...
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