Chapter 12
CHAPTER 12
ACTIVITY-BASED COSTING
LEARNING OBJECTIVES
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
1. Discuss the limitations of using only unit-based drivers to assign costs.
2. Provide a detailed description of activity-based product costing.
3. Describe how homogeneous cost pools can be used to reduce the number of activity rates.
4. Describe activity-based system concepts including an ABC relational database and ABC software.
chapter summary
THIS CHAPTER EXPLAINS HOW ACTIVITY-BASED COSTING SYSTEMS PRODUCE MORE ACCURATE PRODUCT COST INFORMATION THAN TRADITIONAL COSTING SYSTEMS THAT USE UNIT-BASED DRIVERS. POTENTIAL USERS OF ABC SYSTEMS ARE THOSE COMPANIES THAT PRODUCE MULTIPLE PRODUCTS, HAVE HIGH DEGREE OF PRODUCT DIVERSITY, AND HAVE A SIGNIFICANT PERCENTAGE OF NONUNIT-LEVEL OVERHEAD COSTS. THIS CHAPTER ALSO OUTLINES THE ESSENTIAL STEPS IN DESIGNING AN ABC SYSTEM IN ORDER FOR IT TO BE IMPLEMENTED SUCCESSFULLY. THE CHAPTER CONCLUDES BY DESCRIBING AN ABC RELATIONAL DATABASE AND ABC SOFTWARE.
CHAPTER REVIEW
I. UNIT-BASED PRODUCT COSTING
A. Functional-based costing uses only unit-based drivers to assign overhead costs to products. a. Functional-based costing first assigns overhead costs to a functional unit, creating plant or departmental cost pools. Next, these pooled costs are assigned to products using only unit-based drivers. b. Unit-based drivers are factors that cause changes in cost as the units produced change. ■ Functional-based costing uses only unit-based drivers because it assumes that overhead consumed by products is highly correlated with the units produced.
Review textbook Exhibit 12-1, which provides a model of the functional-based product costing system.
B. Plantwide and Departmental Rates 1. Both plantwide rates and departmental rates are used to assign overhead costs to products using unit-based cost drivers. 2. A plantwide rate uses a single
ACTIVITY-BASED COSTING
LEARNING OBJECTIVES
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
1. Discuss the limitations of using only unit-based drivers to assign costs.
2. Provide a detailed description of activity-based product costing.
3. Describe how homogeneous cost pools can be used to reduce the number of activity rates.
4. Describe activity-based system concepts including an ABC relational database and ABC software.
chapter summary
THIS CHAPTER EXPLAINS HOW ACTIVITY-BASED COSTING SYSTEMS PRODUCE MORE ACCURATE PRODUCT COST INFORMATION THAN TRADITIONAL COSTING SYSTEMS THAT USE UNIT-BASED DRIVERS. POTENTIAL USERS OF ABC SYSTEMS ARE THOSE COMPANIES THAT PRODUCE MULTIPLE PRODUCTS, HAVE HIGH DEGREE OF PRODUCT DIVERSITY, AND HAVE A SIGNIFICANT PERCENTAGE OF NONUNIT-LEVEL OVERHEAD COSTS. THIS CHAPTER ALSO OUTLINES THE ESSENTIAL STEPS IN DESIGNING AN ABC SYSTEM IN ORDER FOR IT TO BE IMPLEMENTED SUCCESSFULLY. THE CHAPTER CONCLUDES BY DESCRIBING AN ABC RELATIONAL DATABASE AND ABC SOFTWARE.
CHAPTER REVIEW
I. UNIT-BASED PRODUCT COSTING
A. Functional-based costing uses only unit-based drivers to assign overhead costs to products. a. Functional-based costing first assigns overhead costs to a functional unit, creating plant or departmental cost pools. Next, these pooled costs are assigned to products using only unit-based drivers. b. Unit-based drivers are factors that cause changes in cost as the units produced change. ■ Functional-based costing uses only unit-based drivers because it assumes that overhead consumed by products is highly correlated with the units produced.
Review textbook Exhibit 12-1, which provides a model of the functional-based product costing system.
B. Plantwide and Departmental Rates 1. Both plantwide rates and departmental rates are used to assign overhead costs to products using unit-based cost drivers. 2. A plantwide rate uses a single