ACCT 204 Chapter 7 print

ACCT 204 Chapter 7 print - 13-1Activity Based CostingACCT...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 13-1Activity Based CostingACCT 204Chapter 713-2Three Basic Cost SystemsThree costing systemso__Job order__o__Process__o__Activity-based__In each of these systems DM and DL cost are traced to products in essentially the same manner, though the record keeping differsThe big accounting difference is the 13-3Accounting for OverheadJob-order and __process__ systemsoUse a single plant-wide rate, traditionally based on DL hours or dollars oroUse a separate rate for each department, usually based on DL, DM, or machine hoursActivity-based costingoDevelop a separate rate for each activity that causes cost to be incurred. Activities should NOT be equated to departmentsoIn real companies, there will be a lot more rates than in a process costing system13-4Activity Based CostingABC is designed to provide managers with cost information for strategic and other __decisions__ that potentially affect capacity, and therefore, affect fixed as well as variable costs.Each ABC cost pool has its own unique measure of activity. 13-5Characteristics of Activity-Based Costing SystemsMost relevant in companies that make many different productsKey element is the use of __many__overhead application ratesABC gives more accurate measure of cost of each productBecause pricing decisions are often made on the basis of full cost, ABC results in better pricing decisions13-6Characteristics of Activity-Based Costing SystemsObvious disadvantage of ABC -- lotsof record keepingComputerized accounting systems made ABC possibleActivities are classified as:oUnit-levelo__Batch__-leveloProductlevelo13-7Mechanics of ABCIdentify significant activities that cause costs to be incurredDetermine the total cost expected to be generated by each activityIdentify the best __cost__ __driver__ for each activityCompute the OH rate for each activityAllocate the cost of each activity center to various products (job) based on the rateTotal the OH charged to each product from each activityDivide the total OH for each product by the units expected to be produced to determine the OH cost per unit for that product13-8Three Differences with ABC [1]Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products.13-9Three Differences with ABC [2]Some manufacturing costs may be excluded from product costs. oABC only assigns a cost to a product if decisions concerning that product will cause changes in the cost.oABC excludes two types of costs from product costs:__Organization__ -__sustaining__ costsCosts of unused or idle capacity. 13-10Three Differences with ABC [3]Numerous overhead cost pools are usedoEach of which is allocated to products and other cost objects using its own unique measure of activity....
View Full Document

This note was uploaded on 11/30/2011 for the course ACCT 2104 taught by Professor Davidemerson during the Spring '11 term at Old Dominion.

Page1 / 37

ACCT 204 Chapter 7 print - 13-1Activity Based CostingACCT...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online