Chapter 7 - 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. After studying chapter 7, you should be able to: Understand activity-based costing and how it differs from a traditional costing system, assign costs to cost pools using a first-stage allocation, compute activity rates for cost pools. | Activity-Based Costing: A Tool to Aid Decision Making Chapter 7 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! How Costs are Treated Under Activity–Based Costing ABC differs from traditional cost accounting in three ways. Manufacturing costs Nonmanufacturing costs ABC assigns both types of costs to products. Traditional product costing ABC product costing How Costs are Treated Under Activity–Based Costing ABC does not assign all manufacturing costs to products. Manufacturing costs Nonmanufacturing costs Traditional product costing ABC product costing All Most, but not all Some ABC differs from traditional cost accounting in three ways. How Costs are Treated Under Activity–Based Costing Plantwide Overhead Rate Departmental Overhead Rates Activity–Based . | Activity-Based Costing: A Tool to Aid Decision Making Chapter 7 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! How Costs are Treated Under Activity–Based Costing ABC differs from traditional cost accounting in three ways. Manufacturing costs Nonmanufacturing costs ABC assigns both types of costs to products. Traditional product costing ABC product costing How Costs are Treated Under Activity–Based Costing ABC does not assign all manufacturing costs to products. Manufacturing costs Nonmanufacturing costs Traditional product costing ABC product costing All Most, but not all Some ABC differs from traditional cost accounting in three ways. How Costs are Treated Under Activity–Based Costing Plantwide Overhead Rate Departmental Overhead Rates Activity–Based Costing Number of cost pools Level of complexity ABC uses more cost pools. ABC differs from traditional cost accounting in three ways. How Costs are Treated Under Activity–Based Costing Each ABC cost pool has its own unique measure of activity. Traditional cost systems usually rely on volume measures such as direct labor hours and/or machine hours to allocate all overhead costs to products. ABC differs from traditional cost accounting in three ways. ABC uses more cost pools. Activity An event that causes the consumption of overhead resources. Activity Cost Pool A “cost bucket” in which costs related to a single activity measure are accumulated. $ $ $ $ $ $ How Costs are Treated Under Activity–Based Costing Activity Measure An allocation base in an activity-based costing system. How Costs are Treated Under Activity–Based Costing The term cost driver is also used to refer to an activity measure. Simple count of the number of times an activity occurs. Transaction driver A measure of the .
