AYB321 Lecture Notes - The Accounting Review, Cost Driver, Deutsche Luft Hansa

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Lecture 9: activity-based cost systems and activity-based management. Accuracy in overhead application has become much more important. There is no longer a need to focus on improving labour. Abc presents a different approach to overhead allocation using activity-based cost drivers as opposed to. Manufacturing costs: direct labour (dl): traced directly to the product, direct materials (dm): traced directly to the product, overheads (oh): allocated to the product. Not economy to link directly to the product. Gone from a small cost allocated on the basis of a large, representative cost to a large cost allocated on the basis of a small, unrepresentative cost: results in: Inaccurate costing to products; and (potentially) poor decisions: Tsc vs abc: tcs: overhead costs allocated to products using simple formulas (e. g. % of direct labour, dlh, mh), the abc approach measures the costs of objects by: Using causal cost drivers to assign activity costs to the products, services or customers that benefit from these activities.

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