AFM102 Chapter Notes - Chapter 5: Cost Driver, Resource Consumption, Product Design

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM102
• Professor: Jie Joyce Tian

Document Summary

Chapter 5: activity-based costing: a tool to aid decision making. Activity-based costing (abc): a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs. Two costing systems: abc is typically a supplement to usual cost system. * official costing system: preparing external financial reports. * activity-based costing system: internal decision making and managing activities. Idle capacity: considered period costs that flow through income statement as expense of the current period: highlights cost of idle capacity instead of burying it in inventory and, designing an activity-based costing system. Involves analysis of these types of relationships to identify how products and customers affect costs. Implementation process: assign overhead costs to activity cost pools, calculate activity rates, assign overhead costs to cost objects using the activity rates and activity.