AFA 200 Chapter Notes - Chapter 5: Activity-Based Costing, Cost Driver
16 Jun 2017
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Chapter 5 - activity based costing and management. Activity: event or task, that provides a measurable benefit in the completion of goods or services ready for sale. services baking, glazing doughnuts. Undercosting - a product consumes a high level of resources but is reported to have a low cost per unit. Overcosting - a product consumes a low level of resources but is reported to have a high cost per unit. Product-cost cross-subsidization: if a company undercosts one of its products, it will overcost at least one of its other products. Undercosted products will be underpriced and may lead to sales that might result in losses. Overcosted can lead to over pricing and cause these products to lose market share compared to competitors. Due to competition, management needs to determine if another company has a greater cost advantage, and if it is profitable to produce and ship a certain product. Applying the 5 step decision making process at plastim.
