Identify the basic elements of activity-based costing systems as distinguished from traditional systems, and explain how preventable under-costing and over-costing of products and services affects profitability; Identify and explain the problem of preventable over- and under-costing; Apply the cost hierarchy to develop an activity-based costing (ABC) system; Assign costs using activity-based costing (ABC); Explain the benefits of activity-based costing (ABC) systems for activity-based management (ABM) Unit IV - Period Cost Application & Income Effects of Denominator Level on Inventory Valuation Unit IV continues to develop the concepts associated with allocating indirect costs. It adds to the reasons why accurate cost allocation is important, while difficult to achieve. It describes some reasons why achieving cost allocation decisions that are acceptable to all parties can be difficult. Students will examine manufacturing fixed costs and how their treatment as either an inventoriable cost or a period cost, impacts on operating income for a specific period. The concept of plant capacity specifically in relation to absorption costing is also explored. Specific areas of study include: Criteria for guiding cost allocation decisions, Allocation of indirect costs using the single rate and the dual rate methods, Allocating the costs from support departments to operating departments using one of: oDirect allocation method oStep-Down allocation method oReciprocal method, Allocating common costs using the stand-alone and incremental cost method. Deriving operating income using the absorption costing versus the variable costing methods. Reconciling the different operating income reported between these two methods. Describing the care needed to ensure that inventories are not unnecessarily built up by virtue of using the absorption costing method. Outlining the differences between the four alternative capacity concepts: oTheoretical capacity oPractical capacity oNormal capacity oMaster-budget capacity. Unit IV Resource Materials: Text: Chapters 14 & 9 Course Guide (A2L): Module notes for Unit IV Practice Exercises for Chapters 9 & 14 Optional Resource: Publisher’s Website (MyAccountingLab)Assignment Four: Posted on our Avenue to Learn site.