Accounting Chapters 4- Flashcards
what is a cost driver?
A cost driver is the direct cause of a cost and its effect is on the total cost incurred
Cost Object
Items managers need to measure cost (ex: products, processes, departments, services, or activities)
Estimated Vs Actual cost
Managers use cost estimates to set prices, bid on contracts, evaluate proposals, and distribute resources
Estimated Cost
cost approximation
Direct Cost
can be easily traced
Indirect Cost
cannot be easily traced
What are the steps into figuring out cost allocation
1: What will be allocated?
2: where will it be allocated?
3: how we we allocated it (based on on cost drivers)
Allocation Rate is calcuate how?
Cost to be allocated / Cost driver
Costing Systems
ways companies can find out the cost of something (3 types - job order, hybrid, process)
Process costing system
mass produced (oil, ,mouse pad for computer, handheld video game, generic coffee mug)
Job-order costing system
built to order and high vallue (house, special order personal computer, surgery, audit engagement)
Hybrid
a mix of the two (aircraft carrier, luxury yacht, personalized coffee mug)
Activity Based Costing (ABC)
- two stage allocation process
- the first cost associated with specific business activities and are allocated/assiigned to activity pools
- Second, the pooled cost are allocated to designated cost objects by various cost drivers
Maintiaing all these types of records for activities is expensive. how would you reduce work loads and what would you use to do so>
Activity Center
How does ABC costing differ from traditional costing?
Traditional; allocation pools cost by departments, then allocate departmental cost pools to cost objects using volume based cost drivers
ABC: Pools cost by activity centres then allocate activity center cost pools to cost objects using a variety of volume based drivers
