Essay about Abc Activity-Based Costing and Management

12706 Words Mar 3rd, 2014 51 Pages
Chapter 7
Activity-Based Costing and Management
LEARNING OBJECTIVES
Chapter 7 addresses the following questions:
Q1 How is activity-based costing (ABC) different from traditional costing? Q2 What are activities, and how are they identified?
Q3 What process is used to assign costs in an ABC system?
Q4 How are cost drivers selected for activities?
Q5 What is activity-based management (ABM)?
Q6 What are the benefits, costs, and limitations of ABC and ABM?
These learning questions (Q1 through Q6) are cross-referenced in the textbook to individual exercises and problems.
COMPLEXITY SYMBOLS
The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems.
Questions Having a Single
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However, if overhead costs increase more with setup time than with direct labor costs, the cost to set up for a large batch is likely similar to the cost of setting up a small batch. The cost per unit is then probably much lower for the large batch than for the small batch.
7.2 Organization-sustaining activities are activities related to the overall organization and unaffected by customers served or by quantities of products, batches, or units. Facility- sustaining activities are activities related to the overall operations of a production facility and unaffected by customers served or by quantities of products, batches, or units. Customer-sustaining activities are customer service activities that are independent of sales volumes and mix. Product-sustaining activities occur to support a product line or a single product if it is not part of a product line. Batch-level activities increase as the number of batches increase. These activities include setup and monitoring batches of product. Unit- level activities increase proportionately with production volumes or sales volumes.
7.3 Because ABC

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