COMMERCE 2AB3 Chapter Notes - Chapter 5: Root Mean Square, Activity-Based Costing, Cost Driver

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 2AB3
• Professor: Khalid Nainar

Document Summary

Activity: any event, action, transaction, or work sequence that causes a cost to be incurred in producing a product of providing a service. Activity-based costing (abc): an overhead cost allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by using cost drivers that represent the activities used. Activity-based management (abm): an extension of abd from a product costing system to a management function that focused on reducing costs and improving processes and decision-making. Activity cost pool: the overhead cost allocated to a distinct type of activity or related activities. Batch-level activities: activities performed for each batch of products. Cost driver: any factor or activity that has a direct cause-effect relationship with the resources consumed. In abc, companies use cost drivers to assign activity cost pools to products or services.