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Accounting Ch13 part 2

Accounting Ch13 part 2 - Activity-based costing(ABC is the...

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A process costing system is a costing system is a costing system used to accumulate costs for a production process that is more or less continuous, frequently involving several departments. Production during the month is stated in equivalent units of production – the number of units that would have been produced if all production efforts during the month had resulted in completed products. Absorption costing is a product costing method by which both variable and fixed manufacturing costs are included in product costs. In direct or variable costing, only variable manufacturing costs are included in the product cost. The distinction between absorption and direct costing focuses on manufacturing overhead costs only.
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Unformatted text preview: Activity-based costing (ABC) is the process of accumulating manufacturing overhead costs by production support activity and then applying manufacturing overhead to production based on the activity required for each job or product. • An ABC system involves identifying the activity that causes the incurrence of a cost; this activity id known as a cost driver. • Cost distortion is a shift in the relative amount of manufacturing overhead costs applied to the mix of products produced that occurs because a single cost driver application rate is used instead of activity-based costing rates. • Activity-based management (ABM) is the use of activity-based costing information to support the decision-making process....
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