ACTG 2300 Lecture 9: Day 9 Notes

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Day 9 2/3
Chapter 7:
Allocation Method
Traditional
o Actual
o Normal
ABC
Activity Based Costing (ABC)
Advanced cost accounting system
WHY companies were allocating differently because:
1) OH Cost is becoming increasingly important
a. Product cost used to be evenly split DM, DL, OH
b. Now mostly OH, some DL, some DM
c. We use more machines and computers, which come with OH costs
d. If you calculate your cost wrong, your price is wrong, so you do not
succeed in the market
i. Decided OH is more important than they had been treating
it
2) Diversity of products offered by the same company
a. Different ways of delivering the same service
b. Attitudes of consumers are different, so costs are different
TOT OH Cost
RESOURCES (OH Cost) that go into ACTIVITES and lead to COST
1st Stage Allocation
Resources to Activity
o What activities go into
o EX: set up machine, run, maintain
Use Resource Cost Driver
2nd Stage Allocation
Activities to Cost
Use Activity Cost Driver
MOH Cost Applied
Split into 2+ objects
Steps for ABC
1. Identify the activities
a. How to go about identifying
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