Ch. 9 - Activity-based costing Flashcards
Action analysis report
A report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity.
Activity-based costing (ABC)
A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs.
Activity-based costing is a concept that challenges variable costing and absorption costing concepts in the way costs are traced to cost objects.
Activity cost pool
A ‘bucket’ in which costs are accumulated that relate to a single activity in the activity-based costing system
Activity measure
An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool.
Batch-level activities
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.
Customer-level activities
Activities that are carried out to support customers but that are not related to any specific product.
Ease of adjustment code
Costs are coded as Green, Yellow or Red – depending on how easily the cost could be adjusted to changes in activity. ‘Green’ costs adjust automatically to changes in activity without any action by managers. ‘Yellow’ costs could be adjusted in response to changes in activity, but such adjustments require management action; the adjustment is not automatic. ‘Red’ costs could be adjusted to changes in activity only with a great deal of difficulty and the adjustment would require management action.
First-stage allocation
The process by which overhead costs are assigned to activity cost pools in an activity-based costing system.
Organization-sustaining activities
Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.
Product-level activities
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.
Second-stage allocation
The process by which activity rates are used to apply costs to products and customers in activity-based costing.
Unit-level activities
Activities that arise as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced.
