Managerial Accounting Chapter 3: ABC

Activity cost pool

"cost bucket" in which costs related to a particular activity measure are accumulated

Benchmarking

a systematic approach to identifying the activities that need the most improvement

Activity

event that causes the consumption of overhead resources

Activity-based management

involves focusing on activities to eliminate waste, decrease processing time, and reduce defects

Activity rate

overhead rate in an activity based costing system; each activity has its own activity rate that is used to assign overhead costs to cost objects

Unit-level activities

performed each time a unit is produced; costs of unit-level activities should be proportional to the number of units produced

Batch-level activities

tasks that are performed each time a batch is processed, such as processing purchase orders, setting up equipment, packing shipments to customers, and handling materials

Activity-based costing

technique that attempts to assign overhead costs more accurately to products than the simpler methods discussed thus far

Facility-level activities

(also called organization-sustaining activities) are activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made

Product-level activities

(sometimes called product-sustaining activities) relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured

Shifting of overhead cost

when a company implements activity-based costing, overhead cost often shifts from high-volume products to low-volume products, with a higher unit product cost resulting for the low-volume products.