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MGT223H5 (24)
Minlei Ye (21)

Chapter 5- Activity-Based Costing.docx

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Minlei Ye

MGT223 Chapter 5: Activity-Based Costing Eg. Three roommates hare a place, they share costs for Internet, cable, groceries and rent. Some people don't use certain things. So readjust how much they pay to amount used ABC - very subjective - designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore affect fixed as well as variable costs. ABC vs. Traditional costing - BAISCALLY ABC includes most of the manufacturing costs and some of the non-manufacturing cost o Not all costs from manufacturing are put into ABC: Idle capacity (idle labor, like if materials are received late, workers cant do anything so idle labor) etc. o Some non-manufacturing costs will be assigned to ABC: shipping, selling costs o *MOH is used under the traditional costing system(process& job order costing) - ABC uses more cost pools o Traditional cost systems usually rely on volume measures such as DL (hrs or machines hrs) to allocate all overhead costs to products - ABC bases level of activity on capacity o ABC: products are charged for costs of capacity they use (not for the costs of capacity they don't use) Unused capacity costs are treated as period expenses o Traditional: predetermined overhead rate is based on budgeted activity.
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