notes-c8 - C8- ACTIVITY BASED COSTING A TOOL TO AID...

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1 C 8 - ACTIVITY BASED COSTING – A TOOL TO AID DECISION MAKING notes-c8.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM © CHAPTER LEARNING OBJECTIVES: MAJOR: - Explain the three approaches to overhead allocation. - Explain and identify unit, batch, product, customer, and organization level activities. - Explain how to implement ABC. - Identify benefits and limitations of ABC. NOT IMPORTANT: - Action analysis report using ABC will not be covered – Appendix 8A. The proper allocation of FOH is the most difficult aspect of costing products, jobs or services. Sometimes FOH allocated on volume may not be accurate for some products. Because of this potential problem Activity Based Costing has been developed. LEVEL 1 is when there is one plant-wide FOH rate usually using DLH, MH or Material Cost as the common activity base. LEVEL 2 is when there is one FOH rate per department usually using DLH, MH or Material Cost as the common activity base. LEVEL 3 is when there are multiple COST POOLS (group of related costs) that are allocated by that activity (COST DRIVER) that most closely causes the cost to occur. (NOTE: The terms Level 1, 2 and 3 are not widely recognized in industry. Outside of this class you should use plant-wide overhead rates, departmental overhead rates, or ABC, as appropriate.) ACTIVITY BASED COSTING: THERE ARE 6 KEY COMPONENTS TO IMPLEMENTING ABC: - Identify and define activities and activity pools.
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This note was uploaded on 01/13/2012 for the course ACCT 222 taught by Professor Staff during the Spring '11 term at Los Rios Colleges.

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notes-c8 - C8- ACTIVITY BASED COSTING A TOOL TO AID...

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