Activity Based Costing and Management Chapter Outline Show
Lecture Notes 1. LIMITATIONS OF FUNCTIONAL-BASED COST ACCOUNTING SYSTEMS
2. ACTIVITY-BASED PRODUCT COSTING
3. ACTIVITY-BASED CUSTOMER AND SUPPLIER COSTING
4. PROCESS-VALUE ANALYSIS
5. APPENDIX: QUALITY AND ENVIRONMENTAL COSTING
6. REPORTING QUALITY COST INFORMATION
7. ENVIRONMENTAL COST MANAGEMENT
How is activityThe five steps are as follows:. Identify costly activities required to complete products. ... . Assign overhead costs to the activities identified in step 1. ... . Identify the cost driver for each activity. ... . Calculate a predetermined overhead rate for each activity. ... . Allocate overhead costs to products.. What is the principle that activityThe basic principle of ABC is that products consume activities. Activities or tasks undertaken during an operation attracts or cause costs, meaning that activities are the cost drivers. The system assigns costs to activities rather than products.
Why some entities allocated their overhead cost using activityActivity-based costing provides a more accurate method of product/service costing, leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them.
What does the activityActivity-based costing (ABC) is a method to determine the total cost of manufacturing a product, including overhead. It is calculated by taking the cost pool total and dividing it by the cost driver.
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