CACC406 CH05 - CACC406 CH05 ACTIVITY BASED COSTING SYSTEMS...

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CACC406 CH05 ACTIVITY BASED COSTING SYSTEMS A cost accounting system collects and classifies costs and assigns them to cost objects goal – measure the cost of designing, developing, producing/purchasing, selling, distributing, and servicing particular products or services Technique to determine cost: 1. job costing 2. activity based costing 3. process costing ACTIVITING BASED COSTING (ABC) Attention is directed on activities rather than products If many costs are caused by non-volume-based cost drivers, activity-based costing (ABC) should be considered Indirect Costs are allocated first to activities GENERAL IDEA: 1. accumulates overhead costs for each of the activities of an organization 2. assigns the costs of activities to the products, services, or other cost objects that caused that activity Allocation of indirect costs to products/services is done in relation to the activities which caused them to be incurred For example, apply more "quality control" costs to those products which require more quality control testing Cause-effect relationship between an activity and a cost object is established by identifying the cost drivers for each activity EXAMPLE ACTIVITY COST DRIVER Cost-driver activity Production Set-up #of production runs Is measured by the Production Control #of production process changes #tranx involved in Engineering #of engineering change orders Activity.
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