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MGT223H5 (26)
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Chapter 05

MGT223 Chapter05:Activity-Based Costing Notes

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University of Toronto Mississauga
Minlei Ye

MGT223 Chapter05: Activity-Based Costing In activity-based costing, 1. Non-manufacturing as well as manufacturing costs may be assigned to products, but on a cause-and-effect basis 2. Some manufacturing costs may be excluded from product costs 3. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity. 4. Overhead rates, or activity rates, may be based on the level of activity at capacity rather than on the budgeted level of activity Activity-Based Costing: method based on activities that is designed to provide managers with cost info for strategic and other decisions that potentially affect capacity and thus fixed and variable costs 1. ABC assigns some manufacturing and some nonmanufacturing costs while traditional product costing assigns all manufacturing costs to products 2. ABC uses cost pools while traditional cost system rely on volume measures such as DL hours or machine hours 3. ABC charges products based on level of activity on capacity, unused capacity costs are treated as period expenses while traditional costing is based on budgeted activity Activity: an event that causes the consumption of overhead resources Activity Cost Pool: a “cost bucket” in which costs related to a particular activity measure are accumulated How costs are treated under ABC: 1. Unit-level activ
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