ACC 100 Lecture Notes - Lecture 6: Quality Costs, Activity-Based Costing, Cost Driver

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8 Aug 2016
Department
Course
Chapter 7 Activity Based Costing
and Management
FUNCTIONAL-BASED COSTING
Functional-Based systems
Based on volume measures
direct labour
machine hours
Two Types
plant wide rates
departmental rates
These measure and rates produce average costs that over or understate individual product
costs.
UNIT AND NON-UNIT-LEVEL ACTIVITIES
Unit-Level Activities: activities performed each time a unit is produced
Non-Unit-Level Activities: activities that are not performed each time a unit is produced
Vary with some other factors other than units and identifying such will be helpful in
predicting and managing these costs
Activity Based Costing (ABC) addresses these issues
PRODUCT DIVERSITY
ABC views that cost are
Unit-level Batch-level
Product-Sustaining Facility-sustaining
products consume overhead activities in consistently different proportions because of
differences in
oproduct size
ocomplexity
osetup time
obatch size
the presence is necessary for cost distortion to occur
product costs will be distorted whenever the unit-based overhead cost does not vary on
direct proportion to non-unit-based overhead consumed.
Calculating consumption Ratios
1. Calculate Activity rates (cost/activity)
Unit cost for deluxe and regular models
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