Student
1). ABC provides a more accurate view of product cost, but companies typically use it as a supplemental costing system. The allocation bases used in activity-based costing differ from those used in traditional costing. Activity-based costing determines every activity associated with producing an item and allocates a cost to the activity. The cost assigned to the activity is then assigned to products that require the activity for production.
2). The methods are the following:
Account analysis- This is the most common approach and it requires that an experienced person reviews the appropriate accounts and determine whether the costs in each account are fixed or variable.
High-low method- Accountants who use this approach are looking for a quick and easy way to estimate costs, and will follow up their analysis with other more accurate techniques. The high-low method uses historical information from several reporting periods to estimate costs.
Scattergraph method- Accountants who use this approach are looking for an approach that does not simply use the highest and lowest data points. This method considers all data points, not just the highest and lowest levels of activity.
Regression Analysis- Regression analysis is similar to the scattergraph approach in that both fit a straight line to a set of data points to estimate fixed and variable costs. It uses a series of mathematical equations to find the best possible fit of the line to the data points and thus tends to provide more accurate results than the scattergraph approach.
3). Cost-volume profit analysis is based upon determining the breakeven point of cost and volume of goods. Cost-volume profit analysis makes several assumptions in order to be relevant. It often assumes that the sales price, fixed costs and variable cost per unit are constant. Some applications are cost behavior patters, estimating cost behaviors, a modified income statement, an expanded contribution margin, multiple products or services
2). The methods are the following:
Account analysis- This is the most common approach and it requires that an experienced person reviews the appropriate accounts and determine whether the costs in each account are fixed or variable.
High-low method- Accountants who use this approach are looking for a quick and easy way to estimate costs, and will follow up their analysis with other more accurate techniques. The high-low method uses historical information from several reporting periods to estimate costs.
Scattergraph method- Accountants who use this approach are looking for an approach that does not simply use the highest and lowest data points. This method considers all data points, not just the highest and lowest levels of activity.
Regression Analysis- Regression analysis is similar to the scattergraph approach in that both fit a straight line to a set of data points to estimate fixed and variable costs. It uses a series of mathematical equations to find the best possible fit of the line to the data points and thus tends to provide more accurate results than the scattergraph approach.
3). Cost-volume profit analysis is based upon determining the breakeven point of cost and volume of goods. Cost-volume profit analysis makes several assumptions in order to be relevant. It often assumes that the sales price, fixed costs and variable cost per unit are constant. Some applications are cost behavior patters, estimating cost behaviors, a modified income statement, an expanded contribution margin, multiple products or services