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Lecture 13

ACBU 2223 Lecture 13: Lecture 13

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Fordham University
ACBU 2223
John Savignano

 Activity-based costing (ABC) o Designed to provide managers w/ cost info for strategic & other decisions that potentially affect capacity, & therefore, affect “fixed” as well as variable costs  Traditional vs activity-based costing o Manufacturing & nonmanufacturing costs assigned to products in ABC while only manufacturing costs assigned to products in traditional o All manufacturing costs assigned to products in traditional while most, but not all manufacturing costs assigned to products in ABC o ABC uses more cost pools than traditional  How costs are treated under activity-based costing o Activity—an event that causes the consumption of overhead resources o Activity cost pool—a “cost bucket” in which costs related to a single activity measure are accumulated o Activity measure—an allocation base in ABC system o 2 common types of activity measures  Transaction driver—simple count of the number of times an activity occurs  Duration driver—measure of amount of time needed for an activity o 5 levels of activity that largely don’t relate to volume of units produced defined  Unit-level activity  Product-level activity  Organization-sustaining activity  Batch-level activity  Customer-level activity  Define activities, activity cost pools, & activity measures o Customer orders—assigned all costs of resources that are consumed by taking & processing customer orders o Design changes—assigned all costs of resources consumed by customer requested design changes o Order size—assigned all costs of resources consumed as consequence of number of units produced o Customer relations—assigned all costs associated w/ maintaining relations w/ customers o Other—assigned all organization-sustaining costs & unused capacity costs  Use activity-based costing to compute product & customer margins o Product margin calculations  1 step: gather each product’s sales & direct cost data  2 step: incorporate previously computed activity-based cost assignments pertaining to each product rd  3 step: deduct each product’s direct & indirect costs from sales o Customer margin analysis  1 step: gather s
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