22107 Lecture Notes - Lecture 11: Activity-Based Costing, Operating Leverage, Cost Driver
Document Summary
Operating leverage = cm / net profit. (when sales increase, the profits will increase by. Used as an indicator of how sensitive np is to a change in sales. The measure of the proportion of fixed costs in a company"s cost structure. It is used as an indicator of how sensitive profit is to changes in sales volume. Stage 1: identification of activities: overhead costs can be traced to more than one activity. Stage 2: identification of cost drivers: once the activities are identified, each is analysed to find. Machine hours, number of purchase orders, amount of material: what best drives the cost of the activity. Abc systems in non-manufacturing environments: service work is non-repetitive, therefore difficult to analyse, many more faculty-level costs in service companies than manufacturing. Traditional overhead allocation and abc - an example. Volume overhead costing: total overhead / total sq feet. (every square foot costs )
