Activity Based-Costing and Service Cost Allocation Methods Flashcards

1
Q

Peanut Butter Costing (Traditional Costing)

A

Uses broad averages for assigning the cost of overhead uniformly to cost objects

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2
Q

Product Cost Cross-subsidization

A

If a company undercosts one product, it will overcost at least one of its products

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3
Q

Activity-Based Costing System

A

Allocates overhead to multiple cost pools and assigns the activity cost pool to products by means of cost drivers

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4
Q

Cost Driver

A

Triggers a change in the cost activity

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5
Q

Service Department Cost

A

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

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6
Q

Direct Method

(Service Department Cost Allocation)

A

Direct allocation of service cost to the production department

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7
Q

Sequential/Step Method

(Service Department Cost Allocation)

A

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

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