ACCT 2102 Chapter Notes - Chapter 10: Activity-Based Costing, Profit Margin
2 May 2016
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Document Summary
Chapter 10- activity based costing (abc) and activity based management need to estimate (can"t trace directly) Measuring the denominator volume 2 ways to do it: the correct approach: use practical capacity: Estimate practical capacity = maximum possible activity level given available capacity resources. This approach identifies the costs of unused capacity (see next slide) Practical capacity- accounts for hours not used directly such as hours for repairs, maintenance, etc. practical capacity is more realistic than its theoretical capacity. Advantages of abc: uses multiple cost pools and cost drivers to accurately capture the consumption of capacity resources by cost objects, more accurate estimates than in traditional allocations. Disadvantages of abc: abc requires a more detailed information system. Implementing a detailed abc system is costly and time- consuming. Activity based management: activity based management (abm): how to use information from abc to improve profitability by managing products, customers and resources.
