Chapter 5 notes - Cost Accounting Chapter 5 - February 1,...

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Cost Accounting Chapter 5 February 1, 2012 - Activity: an event, task or unit or work with a specified purpose - Indirect costs of activity become a cost pool – the basis for activity-based costing (ABC) o The foundation for activity-based management (ABM) – a strategy to eliminate non-value-added activities - Solves costing problems where: o Indirect overhead is a large proportion of total costs o Outputs produced consume activities differently during the production process Traditional Costing - Also called cost smoothing or peanut butter costing - Spread the costs of conversion uniformly among products and services - Appropriate if: o Indirect costs are a small proportion of total costs o Activities are consumed uniformly in the production process - Inappropriate otherwise: leads to overcosting and undercosting of products and services Undercosting and Overcosting - Output level undercosting o A unit, batch or product consumes a high level of input materials and conversion activities but is reported to have a low total cost o Can lead to underpricing and low operating margins - Output level overcosting o A unit, batch or product consumes a low level of input materials and conversion
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This note was uploaded on 02/02/2012 for the course ACCOUNTING 361 taught by Professor Giarccia during the Spring '11 term at McGill.

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Chapter 5 notes - Cost Accounting Chapter 5 - February 1,...

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