ACTIVITY-BASED COSTING

May 13th, 2015
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Southwestern Oklahoma State University
Course: general
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Recognize the difference between traditional costing and activity-based costing. A traditional costing system allocates unit-based overhead to products on the basis of predetermined plantwide or department-wide volume of unit-based output rates such as direct labor or machine hours.

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CHAPTER 3(Weygandt)Activity-Based COSTINGCHAPTER STUDY OBJECTIVES1.Recognize the difference between traditional costing and activity-based costing. A traditional costing system allocates unit-based overhead to products on the basis of predetermined plantwide or department-wide volume of unit-based output rates such as direct labor or machine hours. An ABC system allocates overhead to identified activity cost pools, and costs are then assigned to products using related cost drivers that measure the activities (resources) consumed.2.Identify the steps in the development of an activity-based costing system. The development of an activity-based costing system involves four steps: (1) Identify and classify the major activities that pertain to the manufacture of specific products and allocate overhead costs to the appropriate cost pools. (2) Identify the cost driver that has a strong correlation to the costs accumulated in the activity cost pool. (3) Compute the activity-based overhead rate per cost driver. (4) Assign overhead costs for each activity cost pool to products or services using the cost drivers.3.Know how companies identify the activity cost pools used in activity-based costing. To identify activity cost pools, a company must perform an analysis of each operation or process, documenting and timing every task, action, or transaction.4.Know how companies identify and use the activity cost drivers in activity-based costing. Cost drivers identified for a

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