ACC 406 Lecture : Chapter 7.txt
Document Summary
Acc 406 chapter 7 -- activity-based costing and management. Because you are using an average, rates can give you a distorted number for cos ts. For companies operating in margin-tight industries, this small distorition has huge affects. Cost system needs to take into consideration the weight of certain costs, not j ust the average. 2 factors impair unit-based plantwide and dept. rates: the proportion of nonunit-related overhead costs to total overhead costs is l arge, the degree of product diversity is great. Plantwide/dept rates assume that a product consumption of overhead resources is related strictly to the units produced. Unit-level activities: activities that are performed each time a unit is produce d. However, for non-unit level activies: activities that are not performed each ti me a product is produced. Therefore, these are unlikely to change w/ units produced. Activity-based costing: cost hierarchy that categorizes cost to display costs as sociated with non-unit level activities (pg.