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Chapter 7 Notes

by: Shubham Agarwal

Chapter 7 Notes ACCT 116

Shubham Agarwal
GPA 3.82

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These notes cover detailed explanation of the key points in chapter.
Managerial Accounting
Stacey Kline
Class Notes
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This 1 page Class Notes was uploaded by Shubham Agarwal on Monday April 25, 2016. The Class Notes belongs to ACCT 116 at Drexel University taught by Stacey Kline in Fall 2015. Since its upload, it has received 18 views. For similar materials see Managerial Accounting in Accounting at Drexel University.

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Date Created: 04/25/16
Chapter 7 Activity-Based Costing: A Tool to Aid Decision Making ABC uses a four-level cost structure to determine how far down the production cycle costs should be pushed:  Unit level (output level)  Batch level  Product sustaining level  Customer level  Organization sustaining level Activity – an event that causes the consumption of overhead resources Activity cost pool – a “cost bucket” in which costs related to a single activity measure are accumulated Activity measure – the term cost driver is also used to refer to an activity measure. T2o types of activity measures:  Transaction driver – simple count of the number of times an activity occurs  Duration driver – a measure of the amount of time needed for an activity ABC – 5 steps: 1. Identify activities 2. Assign costs to cost pools 3. Compute activity rates for cost pools 4. Assign costs to product 5. Compute product margin Determine if PH is over or under costed when comparing traditional costing to ABC costing. Compare total product cost under each method. The results of overcosting one product and undercosting another:  The overcosted product absorbs too much cost, making it seem less profitable than it reall is  The undercosted product is left with too little cost, making it seem more profitable than it really is 3 main differences between traditional costing and ABC: 1. ABC assigns manufacturing and nonmanufacturing costs 2. ABC does not assign all manufacturing costs 3. ABC uses more cost pools, whereas traditional generally uses one Activity rate = total cost/total activity


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