COMM-2016EL Study Guide - Midterm Guide: Activity-Based Costing
29 Oct 2017
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Cost object made up of 3 components: direct material, plus, direct labour, plus, factory overhead machine hours or direct labour costs. To determine (cid:498)factory overhead(cid:499), indirect (cid:523)overhead(cid:524) costs are accumulated in a (cid:498)cost pool(cid:499) and then allocated to the cost object on a (cid:498)volume basis(cid:499), often direct labour hours, Example: a company produces 2 products (cid:498)widget a(cid:499) takes one labour hour to produce and (cid:498)widget b(cid:499) takes two labour hours to produce. Activity based costing (abc) accumulates overhead costs for each activity of an organization and then assigns the cost of activities to the cost object. Traditional job costing (one moh rate) usually results in simple products being overcosted and complex products being undercosted. Abc costing results in more accurate determination of indirect costs.
