Chapter 7 and 8 Flashcards
Cost objects
An item assigned a separate measure of cost
cost pool
a collection of costs that are to be allocated to cost objects
Cost allocation
the process of allocating costs in a cost pool to cost objects
Support department
does not work directly on producing products, but necessary for the manufacturing process to occur
Product department
works directly on the product being produced
Activity based costing - manufacturing overhead (ABC)
methodology used to measure the cost of cost objects and the performance of activities
traditional - manufacturing overhead
looks at allocating costs on a department base and therefore as opposed to activities completed
one rate per department
cost driver
any activity or factor that causes costs to be incurred
volume based cost driver
activities that are directly impacted by level of output
non-volume based cost driver
activities not directly tied to outputs
Problems of volume based costing
Proportion of DL costs decrease
Proportion of Manufacturing costs decrease
Product diversity increase
machinery costs more at start as opposed to output
Activity drivers
a cost driver used to estimate the cost of an activity consumed by the cost object
Should be linear relationship between them
what caused cost to occur?
can it be easily measured?
varied proportionally with the activity cost?
