Chapter 21 47 contemporary developments contemporary

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Unformatted text preview: lable for more productive purposes Elements of JIT: Dependable suppliers; Multi­skilled workforce; Total quality control system Benefits of JIT: Reduced inventory; Enhanced product quality; Reduced rework and storage costs; Savings from improved flow of goods Chapter 21-45 Contemporary Developments -- JIT Contemporary Developments JIT Illustration 21-24 Chapter 21-46 Contemporary Developments Contemporary Developments Contemporary Activity-Based Costing (ABC) An overhead cost allocation system that focuses on activities performed in producing a product. Traditional Costing System: allocates overhead to products using predetermined unit­based output rate ABC System: allocates overhead to multiple activity cost pools and assigns cost pools to products using cost drivers that represent activities used Assumptions of ABC: All overhead costs for an activity must have the same cost driver and should respond proportionally to changes in the activity of the cost driver. Chapter 21-47 Contemporary Developments Contemporary Developments Contemporary Activity-Based Costing (ABC) continued May be used with either a job order or a process costing system. Primary Benefit: More accurate and meaningful product costing Secondary Benefit: Improved cost data regarding an activity may lead to reduced costs for that activity ABC makes managers realize that activities not products ultimately determine company profitability Chapter 21-48 Traditional Costing versus Activity-Based Costing Traditional Costing versus Activity-Based Costing Production and Cost Data APPENDIX Illustration: Assume that Atlas Company produces two products, The Boot and The Club. The Boot is a high­volume item totaling 25,000 units annually. The Club is a low­volume item totaling only 5,000 units per year. Each product requires one hour of direct labor for comp...
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