chap05 - David Franz, 2012 Chapter 5 Activity- Based...

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© David Franz, 2012 Chapter 5 Activity- Based Costing (ABC) and Activity-Based Management (ABM) I. Refinements in Costing Systems: - Assigning direct materials or direct labor costs to products or services poses no particular challenge since they can be assigned using direct tracing. Overhead costs, however, are more difficult to trace because of a weaker input-output relationship. A. Increased direct cost tracing e.g. law office traces copying costs to each client (cost versus benefits) B. Increased number of indirect cost pools and cost drivers to improve cause-effect relationship 1. Traditional product costing systems tend to use one overhead cost pool with one allocation base using plantwide or departmental rates – see Exhibit 5-1, p. 142. 2. Activity-based costing uses multiple cost pools and multiple activity rates to allocate overhead see Exhibit 5-3, p. 150 and Exhibit 5-6, p. 153. C. Improvements in computer technology have made it possible to inexpensively gather the detailed cost data needed for activity-based cost accounting, i.e. reduced the cost of the cost vs. benefits tradeoff. II.
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chap05 - David Franz, 2012 Chapter 5 Activity- Based...

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