BUS 215 Chapter Notes - Chapter 7: Activity-Based Costing, Total Absorption Costing, General Ledger
Chapter 7
• Activity based costing – a method that is designed to provide managers
with cost information for strategic and other decisions that potentially
affet apait ad therefore fied ad variale osts
o Usually a supplement to another costing system
o Used for internal decision making
• Differs from absorption costing by:
o Nonmanufacturing and manufacturing costs can be assigned to
products but only on a cause-and-effect basis
o Some manufacturing costs may be excluded from product costs
o Many OH cost pools are used, each of which is allocated to
products and other cost objects using its own unique measure of
activity
• 2 types of nonmanufacturing costs ABC systems assign to products:
o Trace all direct nonmanufacturing costs to products
o Allocate indirect nonmanufacturing costs to products whenever
the products caused the costs to be incurred
• ABC costing uses more cost pools and unique measures of activity to
better understand the costs of managing and sustaining product
diversity
• Activity cost pool – a bucket in which costs are accumulated that relate
to a single activity measure in the ABC system
• Unit-level activities – performed each time a unit is produced
• Batch-level activities – performed each time a batch is handled or
processed
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