ACCT 2200 Chapter Notes - Chapter 7: Accounting, Cost Accounting
5 May 2015
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Document Summary
Activity-based costing: a tool to aid decision making. Abc is a costing method used to provide managers with cost information that aid in taking decisions that could affect capacity and therefore fixed and variable costs. It supplements the official costing system and works as an internal decision making aid. In traditional cost accounting only manufacturing costs are factored into product costs. However, as per abc, even nonmanufacturing costs are assigned to products, that they can reasonably be supposed to have incurred. In abc, manufacturing overhead like factory security guards" salary, plant controller"s salary etc. are considered organization sustaining costs and are treated as period costs instead of product costs. Abc uses more costs pools in order to support the product diversity that most companies have today. In abc terms, an activity is any event that consumes overhead resources. An activity cost pool is a bucket in which costs are accumulated that relate to single activity measure.
