Chapter 5 Notes
Chapter 5 Notes MGMT 201
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This 1 page Class Notes was uploaded by boilermaker2016 on Wednesday March 2, 2016. The Class Notes belongs to MGMT 201 at Purdue University taught by David Scott in Spring 2016. Since its upload, it has received 10 views. For similar materials see Managerial accounting in Business, management at Purdue University.
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Date Created: 03/02/16
Chapter 5 Activity-Based Costing and Management Traditional Volume-Based Product Costing Systems • Use a single plant-wide predetermined overhead rate (POHR) Activity-Based Costing (ABC) • Uses a two-step procedure to allocate overhead costs to products • Step 1 – Identify significant activities and assign overhead costs to each activity in proportion to resources used • Step 2 – Identify cost drivers appropriate to each activity and allocate overhead to the products • Let’s begin with the end product Two Key Points 1. If you have a large proportion of non-unit-level activities • A unit level cost driver, such as machine hours, will not be able assign the costs of non-unit level activities accurately 2. If you have a lot of product diversity • And consumption ratios differ widely between activities, no single cost driver will accurately assign overhead costs A Little More on Cost Drivers • When selecting a cost driver, you should consider o Higher is better o Cost/Benefit rule applies o Can be good or bad § # of material moves as material handling driver à JIT § # of vendor contacts as purchasing driver Activity Based Management (ABM)
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