Transcription of CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY …
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CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY …
EA 5-1 CHAPTER 5 ACTIVITY -BASED COSTING AND ACTIVITY -BASED MANAGEMENT 5-1 What is broad averaging, and what consequences can it have on costs? Broad averaging (or peanut-butter COSTING ) describes a COSTING approach that uses broad averages for assigning (or spreading , as in spreading peanut butter) the cost of resources uniformly to cost objects when the individual products or services, in fact, use those resources in non-uniform ways. Broad averaging, by ignoring the variation in the consumption of resources by different cost objects, can lead to inaccurate and misleading cost data, which in turn can negatively impact the marketing and operating decisions made based on that information. 5-2 Inaccurate COSTING can result in two deviations. Name the two deviations and explain how they can impact a business. These two deviations are overcosting and undercosting. Undercosting will cause underpricing which can lead to sales that actually result in losses, because the sales may bring in less revenue than the cost of resources, though the company is under the assumption that it is making a profit.
averages for assigning (or spreading, as in spreading peanut butter) the cost of resources uniformly to cost objects when the individual products or services, in fact, use those resources in ... level costs, batch-level costs, product-sustaining costs or service-sustaining costs, and facility-sustaining costs. ... 5-8 How can ABC help with cost ...
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