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Chap 7 notes - Chap 7: Activity-Based Costing...

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Chap 7: Activity-Based CostingActivity-based costing (ABC)- designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costsoUsually used as a supplement to a company’s usual costing system, used for internal decision makingABC- An OverviewIn ABC costing:1.Nonmanufacturing as well as manufacturing costs may be assigned to products2.Some manufacturing costs may be excluded from product costs3.Numerous overhead cost pools are usedNonmanufacturing Costs and ABCoProducts are assigned all overhead costs (manufacturing and nonmanufacturing)Manufacturing Costs and ABCoABC systems do not assign two types of manufacturing overhead costs to productsoDo not arbitrarily assign these types of costs (organization sustaining costs) to productsoProducts are only charged for the costs of the capacity they useCost Pools, Allocation Bases, and ABCoActivity- any event that causes the consumption of overhead resourcesoActivity cost pool-a “bucket” in which costs are accumulated that relate to a single activity measure in the ABC systemoActivity measure-an allocation base in an ABC systemTransaction drivers-simple accounts of the number of times an activity

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