Chapter05-outline

Chapter05-outline - 1. TRADITIONAL, VOLUME-BASED...

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1. TRADITIONAL, VOLUME-BASED PRODUCT-COSTING SYSTEMS The manufacturing  and  service environments  have changed  as a result of  ever-increasing interna tional competition, technological innovation, and   advances in computerized  systems. Many companies still use traditional  volume-based  (sometimes called  throughput-based)  costing systems (as described  in Chapters 3 and  4).  These systems generally group  overhead  into one cost pool and  apply   overhead  to products based  on direct labor, with  labor being a measure  of  volume. In the past, accountants  felt there was a high correlation  between  overhead   and  labor.  However, with  increasing  factory computerization  and   automation, this is not always the case today.   2. ACTIVITY-BASED COSTING SYSTEMS Many organizations  are changing  to  activity-based costing (ABC) systems.  This system  improves product  costing and  management  decision making,  and  involves two stages: 1
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Stage one:  The costs of an organization’s significant activities are first  isolated  into  cost pools .  The cost pools (and  related  costs) fall into the  following  broad  categories, which collectively are known  as a  cost  hierarchy : Unit level— activities that must be done for each unit of  production  (e.g., machining). Batch level— activities that are performed  for each batch of  product  (e.g., setup, quality-assurance, and  receiving). Product-sustaining level— activities that are performed  to  support  an entire product  line (e.g., engineering). Facility (or general operations) level—
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Chapter05-outline - 1. TRADITIONAL, VOLUME-BASED...

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