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16 download_doc.php - Chapter 10- Activity Based Costing...

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Chapter 10- Activity Based Costing and Management -gross margin is not suited for a measure of product profitability; this metric is designed for financial reporting and not for decision making because it often excludes controllable costs and includes noncontrollable costs -contribution margin ignores changes in capacity costs - profit margin - (CM-cost of capacity resources) appropriate for evaluating long-term profitability -Four steps in designing a product costing system: 1. determine how to form cost pools 2. identify which cost pools to allocate (to separate the costs of capacity resources into controllable and noncontrollable costs to properly evaluate the impact of various long-term decisions on profitability) 3. identify the cost driver to use for allocating each cost pool 4. determine the appropriate denominator volume of each cost driver to calculate allocation rates -activity-based costing (ABC)- an approach to determine product costs (controllable costs of capacity resources) STEP 1: Forming Cost Pools -ABC systems use activities as the basis for forming cost pools -an organization is a set of coordinated business processes - business process - converts organizational inputs into a measurable output; a collection of activities—form cost pools by the activities that make up a business process; captures the notion that products require activities and activities consume resources Example- purchase order processing, inventory management, production scheduling, production
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This note was uploaded on 04/18/2011 for the course BUS 203 taught by Professor Keenan during the Winter '09 term at Indiana.

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16 download_doc.php - Chapter 10- Activity Based Costing...

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