Activity Based Costing

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Chapter 8 Activity-based costing Problems with conventional product costing systems General features of conventional product costing systems Direct material and direct labour costs are traced to products Manufacturing overhead costs are allocated to products using a predetermined overhead rate Manufacturing overhead rate is calculated using some measure of production volume Non-manufacturing costs are not assigned to products Problems with conventional product costing systems Failure to adapt to the changing business environment Increasing levels of non-volume-driven manufacturing overhead costs Increasing…show more content…
Depends on the purpose of the system, which depends on the needs of management A decision to include activity-based management in an ABC system will influence the range of costs included in the system, as well as the type of cost drivers identified Activity-based hierarchy of costs and activities Unit level activities Performed for each batch of product Batch level activities Performed for each batch of product Product level (or product-sustaining) activities Performed for specific products or product families Facility level (or facility-sustaining) activities Not usually included in product costs Activity-based versus conventional product costs Conventional product costing assumes product costs are driven by volume-based cost drivers Conventional costing ignores batch size Units produced in large batches consume a relatively low consumption per unit of batch costs ABC may include

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