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17 Cards in this Set
- Front
- Back
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what is ABC used for? |
method of assigning overhead (indirect) costs to products
-alternative to traditional, volume-based approach |
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why is ABC used? |
better able to identify the cost of an activity and to more accurately associate activities with the products that require them |
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define Cost Drivers |
the way an activity accumulates costs
i.e. direct labor hours, occupancy percentages |
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define Cost Center |
area where costs are accumulated and then distributed to products
i.e. AP, marketing |
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what are the 4 common groupings for ABC activities? |
1. unit-level
2. batch-level
3. product sustaining level: support product line as a whole (i.e. advertising, engineering)
4. facility/general operations level: support the plan that produces the products (manager salaries, taxes, insurance) |
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define Activity Cost Pool; how do they compare to traditional cost pools? |
costs assigned to a particular activity
result in larger number of smaller cost pools that can be more closely aligned to products |
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when can ABC be used? |
1. with job order and process costing systems 2. with standard costing and variance analysis 3. for service businesses and manufacturers |
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what does ABC shift toward (compared to traditional costing)? |
shift costs away from high volume, simple products to lower volume, complex products |
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how are traditional and ABC costing systems similar? |
developing overhead rates/allocation |
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steps in the ABC approach |
1. determine allocation rates: divide budgeted cost in each category by budgeted activity
2. total OH allocated to WIP: multiply 4 determined allocation rates by actual activity |
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define Process Management |
activity analysis to achieve an understanding of the work that takes place in an organization
managers focus on processes, accountants focus on costs |
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define Processes |
series of activities conducted to accomplish a defined objective; broadly known as Activity Based Management |
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what are the 2 main objectives of Process Management? |
1. increase manager understanding 2. promote the elimitation of waste |
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what does Process Management highlight? |
-focuses on processes that cut across silos, following the input-output relationships as the transformation of inputs to outputs is accomplished by the various processes in the organization
-continuous improvement of processes |
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define Business Process Reengineering (BPR) |
process analysis approach that results in radical change; extreme transformation |
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define Shared Service |
one part of an organization provides an essential business process that had previously had been provided by multiple parts of the same organization
-operates the same as an internal business -not the same as centralizing operations
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what is the main purpose of a Shared Service? |
to provide a process in a more effective and efficient manner that lowers costs
-costs often go down with shared services |
