MGMT 122 Chapter Notes - Chapter 7: Cost Driver, Total Absorption Costing, Profit Margin
Document Summary
Activity based costing to help in decision making. Activity based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that would affect capacity and therefore fixed and variable costs. Includes all direct costs that can be traced to products and all indirect costs that are caused by products. We don"t need to distinguish between manufacturing and nonmanufacturing costs anymore. Abc treats costs that are totally unaffected by which products are made during a period like period expenses not product expenses. Notice that in absorption costing, the cost of unused capacity are assigned to products. Abc allows for more cost pools and uses unique measures of activity to better understand the costs of managing and sustaining product diversity system. There are 5 levels of activity in abc. An activity is any event that causes the consumption of oh.
