Chapter 5: Activity-Based Costing (ABC) & Activity-Based ...
Chapter 5: Chapter 5: Activity-Based Costing (ABC)& Activity-Based Management (ABM)H 13 5 -1Horngren 13eA SIMPLE Costing SYSTEM5-2AN Activity-Based Costing SYSTEM5-3ABC s 7 StepsStep 1:Identify the products that are thechosen cost :IdentifythedirectcostsoftheproductsStep 2 3:Select theactivities and cost-allocation basesto 4:Identifytheindirect costsassociated with each cost-allocationbase( activity ).allocation base( activity ).Step 5:Compute therate per unitof each cost-allocation base( activity )used to allocate indirect costs to the(y) 6:Compute the indirectcosts allocatedto the 7:Compute thetotal costs of the productsby adding alldirect and indirect costs assigned to the HIERARCHIESIn an ABC system, costs are categorized on the basis of the different types of cost drivers utilized. ABC systems commonly use a cost hierarchy havingyyygfour levels. These cost drivers differ in their relationship between the indirect cost and the product or unit-level costs are the costs of activities performed on each individual unit of a product or service.
COST HIERARCHIES PdProduct-sustaii ining costs (i(service-sustaii ) ining costs) are t h f iii he costs of activities undertaken to support individual products or services regardless of the number of units or batches produced. – Design costs are an example of this type of cost.
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