Ch. 3A

activity cost pool

a bucket in which costs are accumulated that relate to a single activity

activity-based absorption costing vs. traditional absorption costing

activity-based absorption costing uses more cost pools than traditional approach activity-based approach uses activity cost pools instead of plantwide or departmental cost pools activity-based approach includes some batch-level and/or product-level activities and measures that do not relate to the volume of units produced, whereas the traditional approach relies exclusively on volume-related OH allocation

activity measure (cost driver)

an allocation base that is used as the denominator for an activity cost pool

activity

an event that causes the consumption of manu OH resources

activity-based absorption costing

assigns all manu OH costs to products based on the activities performed to make those products recognizes causal relationship between resources and cost drivers (makes for a better OH rate)

activity rate

assigns costs from an activity cost pool to products (cost driver rate)

activity-based absorption costing includes

batch-level cost drivers and product-level cost drivers

typical product-level cost drivers include

engineering blueprints/designs, parts administration, environmental certification (these add OH to complex products)

typical batch-drivers include

machine setups, job scheduling, material moves (these add OH to small batches aka low volume products)

activity-based absorption cost system advantages

more manu OH cost pools=more accurate product costs and better understanding of the production process (can see where things need improvement) batch-level OH costs shift from high volume products produced in large batches to low volume products produced in small batches product-level OH costs shift from the simple-to-produce products to the "complex" products

batch-level activity

performed each time a batch is handled or processed, regardless of how many units are in the batch (like a fixed cost) (same batch-level activity for a 10-unit batch as for a 100-unit batch)

product-level activity

relates to specific products and typically must be carried out regardless of how many batches are run or units are produced which makes it complex

how activity-based absorption cost allocation works

there are costs of resources which gets turned into activities (cost pools) which creates cost objects (products)