Chapter 5 powerpoint: ABC Flashcards
1
Q
how does tradition costing work regarding cost allocation and cost pools?
A
keeps one pool for all the overhead and divide it over the units produced
assumes 1 drivers for the overhead cost. For example labor hours
2
Q
what can be the problems with traditional costing?
A
may result in wrong allocation of overhead cost
therefore you will end up with a wrong cost for your products
make a wrong business decision
3
Q
what are the steps of ABC?
A
- Identify the major activities and assign overhead to cost pools
- Identify the cost driver
- Calculate the activity based overhead rate
- Allocate overhead cost to products
4
Q
Benefits ofABC
A
The Advantage of Multiple Cost Pools
The Advantage of Enhanced Cost Control
–> can control value added and non value added activiti
5
Q
how do you find the overhead rate of a cost pool?
A
overhead of a cost pool / diver of that pool
