Chap8gnannotated_1_

Chap8gnannotated_1_ - Chapter 8: Activity-Based Costing...

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Chapter 8: Activity-Based Costing: A Tool to Aid Decision Making 33 Chapter 8: Activity-Based Costing (ABC) Goal: To understand overhead costs by learning the how, where, and why these costs are incurred in order to assist management in its planning and control responsibilities Let’s contrast traditional product costi ng methods with ABC: Traditional Product Costing : Useful for external reporting purposes to value inventory and COGS by providing accurate total overall data Simple and easy to use as traditional methods are embedded within the system Follows GAAP which means it can be argued that it is more reliable (objective) Contains inherent weaknesses as it is unable to isolate the cost of idle capacity Unable to isolate the cost of idle capacity Downside to plant-wide overhead rates vs. department overhead rates ABC : Useful for internal purposes to understand how overhead (both product and period ) relates to the profitability of its products and its customers . Provides more detailed information: Assigns to product both manufacturing and nonmanufacturing overhead costs Excludes some manufacturing costs from product costs Categorizes overhead costs in more detail than traditional costing methods Typically uses different allocation bases (cost drivers) than traditional costing methods
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This note was uploaded on 05/28/2011 for the course ACC 272 taught by Professor Bird during the Spring '08 term at University of Michigan.

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Chap8gnannotated_1_ - Chapter 8: Activity-Based Costing...

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