When measurement errors are large activit ycost

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Unformatted text preview: ABC systems require many calculat ions to determine costs of products and services. Activit y­cost rates often need to be updated regularly. Very detailed ABC systems are costly to operate and difficult to understand. Somet imes the allocat ions necessary to calculate activit y costs often result in act ivit y­cost pools and quant ities of cost­allocat ion bases being measured with error. When measurement errors are large, activit y­cost informat ion can be misleading. 5­12 No, ABC systems apply equally well to service companies such as banks, railroads, hospitals, and account ing firms, as well merchandising co mpanies such as retailers and distributors. 5­13 No. An act ivit y­based approach should be adopted only if it s expected benefit s exceed it s expected costs. It is not always a wise invest ment. If the jobs, products or services are alike in the way they consume indirect costs of a company, then a simple costing system will suffice. 5­2 5­14 Increasing the number o f indirect­cost pools does NOT guarantee increased accuracy o f product...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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