Chapter 17 - Activity-based costing. In this chapter students will be able to: Discuss the difference between traditional costing and activity-based costing, apply activity-based costing to a manufacturer, explain the benefits and limitations of activity-based costing, apply activity-based costing to service industries. | Activity-Based Costing Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 17 Apply activity-based costing to a manufacturer. CHAPTER OUTLINE Discuss the difference between traditional costing and activity-based costing. 1 2 LEARNING OBJECTIVES Explain the benefits and limitations of activity-based costing. 3 Apply activity-based costing to service industries. 4 Allocates overhead using a predetermined rate. Job order costing: direct labor cost may be the relevant activity base. Process costing: machine hours may be the relevant activity base. TRADITIONAL COSTING SYSTEMS LO 1 LEARNING OBJECTIVE Discuss the difference between traditional costing and activity-based costing. 1 ILLUSTRATION 17-1 Traditional one-stage costing system Atlas Company produces two abdominal fitness products—the Ab Bench and the Ab Coaster. The direct materials cost per unit is $40 for the Ab Bench and $30 for the Ab Coaster. The direct labor cost is $12 per unit for each product. Both products require one direct labor hour per unit, both products are allocated overhead cost of $30 per unit. ILLUSTRATION 17-3 Total unit costs—traditional costing ILLUSTRATION OF A TRADITIONAL COSTING SYSTEM LO 1 Tremendous change in manufacturing and service industries. Decrease in amount of direct labor usage. Significant increase in total overhead costs. Inappropriate to use plantwide predetermined overhead rates when a lack of correlation exists. Complex manufacturing processes may require multiple allocation bases; this approach is called activity-based costing (ABC). THE NEED FOR A NEW APPROACH LO 1 An approach for allocating overhead costs. Allocates overhead to multiple activity cost pools. Assigns the activity cost pools to products or services by means of cost drivers. ACTIVITY-BASED COSTING LO 1 2. Identify the cost driver that has a strong correlation to the costs accumulated in each cost pool. ACTIVITY-BASED COSTING 1. Identify and classify the activities involved in the manufacture of specific . | Activity-Based Costing Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 17 Apply activity-based costing to a manufacturer. CHAPTER OUTLINE Discuss the difference between traditional costing and activity-based costing. 1 2 LEARNING OBJECTIVES Explain the benefits and limitations of activity-based costing. 3 Apply activity-based costing to service industries. 4 Allocates overhead using a predetermined rate. Job order costing: direct labor cost may be the relevant activity base. Process costing: machine hours may be the relevant activity base. TRADITIONAL COSTING SYSTEMS LO 1 LEARNING OBJECTIVE Discuss the difference between traditional costing and activity-based costing. 1 ILLUSTRATION 17-1 Traditional one-stage costing system Atlas Company produces two abdominal fitness products—the Ab Bench and the Ab Coaster. The direct materials cost per unit is $40 for the Ab Bench and $30 for the Ab Coaster. The direct labor cost is $12 per unit for each product. Both products require one .
