After studying Chapter 6, you should be able to: Explain how variable costing differs from absorption costing and compute unit product costs under each method, prepare income statements using both variable and absorption costing, reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ. | Activity-Based Costing: A Tool to Aid Decision Making Chapter 6 Chapter 6: Activity-Based Costing: A Tool to Aid Decision Making This chapter introduces students to activity-based costing (ABC), which is a tool that has been embraced by a wide variety of service, manufacturing, and non-profit organizations. Activity–Based Costing (ABC) ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, affect “fixed” as well as variable costs. ABC is a good supplement to our traditional cost system I agree! ABC is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, “fixed” as well as variable costs. It is ordinarily used as a supplement to, rather than as a replacement for, the company’s usual costing system. How Costs are Treated Under Activity–Based Costing ABC differs from traditional cost accounting in | Activity-Based Costing: A Tool to Aid Decision Making Chapter 6 Chapter 6: Activity-Based Costing: A Tool to Aid Decision Making This chapter introduces students to activity-based costing (ABC), which is a tool that has been embraced by a wide variety of service, manufacturing, and non-profit organizations. Activity–Based Costing (ABC) ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, affect “fixed” as well as variable costs. ABC is a good supplement to our traditional cost system I agree! ABC is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, “fixed” as well as variable costs. It is ordinarily used as a supplement to, rather than as a replacement for, the company’s usual costing system. How Costs are Treated Under Activity–Based Costing ABC differs from traditional cost accounting in three ways. Manufacturing costs ABC assigns both types of costs to products. Traditional product costing ABC product costing Nonmanufacturing costs ABC differs from traditional cost accounting in three ways. The first is that nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. For example, ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products. How Costs are Treated Under Activity–Based Costing ABC does not assign all manufacturing costs to products. All Most, but not all Some ABC differs from traditional cost accounting in three ways. Manufacturing costs Nonmanufacturing costs Traditional product costing ABC product costing The second major difference between ABC and traditional cost accounting is that some manufacturing costs may be excluded from product costs. This is because ABC only assigns a cost to a product if decisions concerning that product will cause changes .
