Activity Based-Costing and Service Cost Allocation Methods Flashcards
Peanut Butter Costing (Traditional Costing)
Uses broad averages for assigning the cost of overhead uniformly to cost objects
Product Cost Cross-subsidization
If a company undercosts one product, it will overcost at least one of its products
Activity-Based Costing System
Allocates overhead to multiple cost pools and assigns the activity cost pool to products by means of cost drivers
Cost Driver
Triggers a change in the cost activity
Service Department Cost
Is a unit in an organization that contributes in a very indirect way to the conversion of raw materials to finished goods
> > Costs incurred in these departments should be ALLOCATED to the production departments to determine the costs of a product for decision making
Direct Method
(Service Department Cost Allocation)
Direct allocation of service cost to the production department
Sequential/Step Method
(Service Department Cost Allocation)
The cost of the initially-ranked service department affects the cost of the secondarily-ranked service department before allocation of costs to the production department