ABC Day 1 Class Notes.docx - Activity-Base Costing Day 1...

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Activity-Base Costing: Day 1 Review: What are the two main purposes of product costing systems? 1. Inventory valuation 2. Decision making The primary purpose of job-order costing, operation costing, and process costing systems to provide ______inventory balances_____________ and _____COGS amount________________ amounts for financial reporting. Using these same systems for decision-making can cause some problems. One example is when a company attempts to recover costs with smaller units by raising prices. The market will not likely respond favorably to the price increase, causing a reduction in profits, rather than an increase in profits. This could start a cycle, which at the extreme may lead to going out of business. This phenomenon is referred to as the ___Death Spiral_________ Group Activity: The company uses a plantwide overhead rate to apply manufacturing overhead costs to jobs. Required: 1. Compute the overhead rate for the current year. 2. Determine the amount of overhead costs that would have been applied to the Hasting job. .

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