Quiz 5 Terms and Concepts Chapter 5 - ACCT 3270.003 Quiz 5 Terms and Concepts Chapter 5 Broad Averaging and Its Consequences Broad Averaging or peanut

Quiz 5 Terms and Concepts Chapter 5 - ACCT 3270.003 Quiz 5...

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ACCT 3270.003 February 16, 2011 Quiz 5 Terms and Concepts Chapter 5, February 16, 2011 Broad Averaging and Its Consequences Broad Averaging or peanut butter costing is a cost approach that uses broad averages for assigning the cost of resources uniformly to cost objects when the individual products or services, in fact, use those resources in non-uniform ways. Product Cost Cross-Subsidization – if a company undercosts one of its products, then it will overcost at least one of its other products. Occurs when a cost is uniformly spread across multiple products without recognition of which products require what resources in what amounts. Undercosting – A product consumes a high level of resources but is reported to have a low cost per unit. Companies that undercost products may make sales that actually result in losses, although they may have the erroneous impression that these sales are profitable. Overcosting – A product consumes a low level of resources but is reported to have a high cost per unit. Companies that overcost products may overprice their products, losing market share to competitors producing similar products. Simple Costing System Simple Costing Systems – Step 1: Identify the products that are chose cost objects Step 2: Identify the direct costs of the products Step 3: Select the cost-allocation bases to use for allocating indirect costs to the products

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