ACCT 211 Test 2

Know how to assign/apply costs to cost objects using ABC.

Homework 6-3??

Steps to implement Activity-Based Costing

1. Define activities, activity cost pools, and activity measures. 2. Assign overhead costs to activity cost pools. 3. Calculate activity rates. 4. Assign overhead costs to cost objects using the activity rates and activity measures. 5. Prepare management reports.

Consumer-level Activities

Customer-level activities relate to specific customers and include activities such as sales calls, catalog mailings, and general technical support that are not tied to any specific product.

Be able to classify costs according to the cost hierarchy

Homework 6-1

Know how to calculate activity cost rates (2nd Stage Allocation)

Homework 6-2

Know how to do first-stage allocation of costs.

allocate MOH to more distinct activity cost pools based upon our cost hierarchies (Pg. 232-235)

Know the differences between ABC and traditional product costing

refer to http://quickbooks.intuit.com/r/pricing-strategy/activity-based-vs-traditional-costing/

Know the limitations of ABC.

1) Difficult to identify the overall activities that influence costs. 2) Not easy to select the most suitable cost drive. 3) Difficult to evaluate cost on the basis of activities. 4) Not suitable for small manufacturing concerns.

Batch-level Activities

Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, tasks such as placing purchase orders, setting up equipment, and arranging for shipments to customers are batch-level activities.

Organization-sustaining Activities

Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. This category includes activities such as heating the factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports to shareholders, and so on.

Product-level Activities

Product-level activities relate to specific products and typically must be carried out regardless of how many batches are run or units of product are produced or sold. For example, activities such as designing a product, advertising a product, and maintaining a product manager and staff are all product-level activities.

Unit-level Activities

Unit-level activities are performed each time a unit is produced. The costs of unit-level activities should be proportional to the number of units produced. For example, providing power to run processing equipment would be a unit-level activity because power tends to be consumed in proportion to the number of units produced.