ADM 3346 Lecture Notes - Lecture 4: Cost Driver

• School: University of Ottawa
• Department: Administration
• Course: ADM 3346
• Professor: Tiemei L I

Document Summary

Inappropriate pooling of indirect costs and poor choices for cost drivers can lead to the incorrect costs of products or services. If one product is under-costed, then other products may be over-costed resulting in product cost cross subsidization: cost cross-subsidization. The over costed product absorbs too much cost, making it seem less profitable than it. The under costed product is left with too little cost, making it seem more profitable than really is. it really is. The over costed products are subsidizing the under costed products. Activity-based costing (abc: abc is a method of cost system refinement, activity costs are then allocated to the final cost object using a cost allocation base (more. Traditional costing: also called cost smoothing or peanut butter costing. Spreads the costs of conversion uniformly among products and services: appropriate if: Indirect costs are a small proportion of total costs.