Acc 349 - Ch.4 Cost Accounting

Front 1

ACTIVITY-BASED COSTING (ABC)

Back 1

Is an approach for allocating overhead costs. More specifically, ABC allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of
cost drivers.

Front 2

activity

Back 2

is any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service

Front 3

activity cost pool

Back 3

Is a distinct type of activity (e.g., ordering materials or setting up machines).

Front 4

cost driver

Back 4

is any factor or activity that has a direct
cause-effect relationship with the resources consumed.

Front 5

Activity-based costing Steps (4)

Back 5

1. Identify and classify the major activities involved in the manufacture of specific
products, and allocate manufacturing overhead costs to the appropriate cost pools.
2. Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool.
3. Compute the overhead rate for each cost driver.
4. Assign manufacturing overhead costs for each cost pool to products, using the overhead rates (cost per driver).