Costing Systems: traditional and ABC Flashcards
1
Q
Implications of Costing systems (CS)
A
- changes in economy: manufacturing processes are no longer labour intensive
- CS has more impact when company produces multiple product lines that have different levels of production complexity
2
Q
Considerations when selecting cost drivers
A
- degree of correlation to cost pool
- cost of measurement
- behavioral effects
3
Q
ABC two stages
A
- costs of most significant activities are isolated into cost pools
- identify appropriate cost driver for each pool
- calculate the pool rate for each activity
4
Q
Cost pools fall into following broad categories (cost hierarchy)
A
4 principal activities: - Unit level - batch level - product sustaining level - facility level Additional activities: - distribution channel - customer level
5
Q
Cost distortion
A
TCS undercosts low volume, high comlpexity products
Cost distortion per unit = TCS - ABC
6
Q
ABC vs TCS
A
- ABC costs more to implement and time-consuming
- ABC allocates more indirect costs to highly complex and low volume products (makes sense as these require higher prices as well)
7
Q
Advantages of ABC
A
- managers can remove activities that incur unnecessary (non-value) costs
- ABC has higher accuracy -better pricing
- helps streamline operations
- Managers can be aware of which activities incur higher costs
