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Chapter 7

Chapter 7.docx

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Ryerson University
ACC 406
Maurizio Di Maio

Chapter 7Activitybased costing and management Limitations of functionalbased cost accounting systems Nonunitrelated overhead costs y Unitlevel activities r activities that r performed each time a unit is produced y Nonunitlevel activities r not performed each time a unit of product is produced o It varies with smth else other than units y Activitybased costing ABC refers to categorizing costs either aso Unitlevel vary with output volume o Batchlevel vary with theof groups or batches that r run o Productsustaining vary with the diversity of the product or service line o Facilitysustaining do not vary with any factor but r necessary in operating the plantExhibit 71 on pg 299 shows ABC Hierarchy Examples of nonunitlevel activities on pg 299300 y Nonunitlevel activity drivers r factors that measure the consumption of nonunitlevel activities by productsexamples r o Batchlevel o Productsustaining o Facilitysustaining y Unitlevel activity drivers measure the consumption of unitlevel activitiesy Activity drivers r factors that measure the consumption of activities by productsother cost objectscan be classified as either unitlevel or nonunitlevel Product diversity y Product diversity means that products consume overhead activities in systematically different proportionsit may occur for several reasons ex on pg 300 y The proportion of each activity consumed by a product is defined as the consumption ratioIllustrating the failure of plantwide or departmental rates y Ex on pg 300301 Problems with cost distortion y More on pg 301302 y Cornerstone 71 on pg 302 Solving the problem of cost distortion
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