Intro to Activity-Based Costing Flashcards

Intro to Activity-Based Costing Flashcards
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Activity-Based Cost Per Unit: Formula

Cost / number of products created. Perform calculation for the cost of materials, labor and overhead. Add results together for total cost per unit.

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Activity-Based Cost Per Unit

The amount of money it takes to make one product as determined by activity-based costing.

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Activity-Based Costing (ABC) Method

A type of costing that allows companies to divide up costs according to their sources. With this type of costing, costs are assigned directly to where they are used.

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Traditional Costing Method

You use this method of costing when you determine costs with the use of an average overhead cost and labor hours needed for a project.

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Activity-Based Costing (ABC): Cost Levels

This type of costing has four levels, or groups, of costing activity. This allows production costs to be carefully allocated.

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Activity-Based Costing (ABC): Facility-Based Cost Level

The costs that are tied to your company's factory in ABC. For example, this could include the rent and taxes a bakery has to pay to stay open.

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Activity-Based Costing (ABC): Product-Based Cost Level

This level of cost is tied to a whole line of products in ABC. If your company makes multiple kinds of cake, each type has its own costs at this level.

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Activity-Based Costing (ABC): Unit-Based Cost Level

Costs in ABC that are tied directly to one specific product. If a company makes a bunch of cakes and only one needs an extra layer of icing, it would be this type of cost.

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Activity-Based Costing (ABC): Batch-Based Cost Level

In ABC, these costs are tied to units that are produced as a group. For example, if a company buys a bag of flour to make twenty cakes, it's this kind of cost.

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19 cards in set

Flashcard Content Overview

Working with this set of flashcards can give you the chance to go over the levels of cost used in activity-based costing. You'll be able to assess the pros and cons of using this costing method. The formula used to find the cost per unit in activity-based costing is covered by these cards. You'll also be able to focus on the theory of constraints and lean manufacturing.

Front
Back
Activity-Based Costing (ABC): Batch-Based Cost Level

In ABC, these costs are tied to units that are produced as a group. For example, if a company buys a bag of flour to make twenty cakes, it's this kind of cost.

Activity-Based Costing (ABC): Unit-Based Cost Level

Costs in ABC that are tied directly to one specific product. If a company makes a bunch of cakes and only one needs an extra layer of icing, it would be this type of cost.

Activity-Based Costing (ABC): Product-Based Cost Level

This level of cost is tied to a whole line of products in ABC. If your company makes multiple kinds of cake, each type has its own costs at this level.

Activity-Based Costing (ABC): Facility-Based Cost Level

The costs that are tied to your company's factory in ABC. For example, this could include the rent and taxes a bakery has to pay to stay open.

Activity-Based Costing (ABC): Cost Levels

This type of costing has four levels, or groups, of costing activity. This allows production costs to be carefully allocated.

Traditional Costing Method

You use this method of costing when you determine costs with the use of an average overhead cost and labor hours needed for a project.

Activity-Based Costing (ABC) Method

A type of costing that allows companies to divide up costs according to their sources. With this type of costing, costs are assigned directly to where they are used.

Activity-Based Cost Per Unit

The amount of money it takes to make one product as determined by activity-based costing.

Activity-Based Cost Per Unit: Formula

Cost / number of products created. Perform calculation for the cost of materials, labor and overhead. Add results together for total cost per unit.

Activity-Based Costing: Benefits

The major benefit of this type of costing is its accuracy in reflecting overhead costs. This allows companies to set better prices and earn more money.

Activity-Based Costing: Disadvantages

You can only use this type of costing internally, which can be a drawback. It is also expensive to use.

Cost Pools

Cost drivers that have been divided up into groups based on how they relate to one another. These groups might include Office Expenses or Raw Materials.

Cost Drivers

Activities involved in the production of goods that cost a business money. These are placed into pools based on their function. For example, a bakery's floor could go in a Materials pool.

Lean Manufacturing

A manufacturing process designed to limit the amount of waste generated during production. It strives to eliminate valueless actions that use up resources.

Theory of Constraints

This theory works to identify constraints that are holding a company back and then trying to work to remove the constraints so the company can reach goals.

Activity-Based Costing: Cost Objects
The products that define costs in activity-based costing. These products are identified in the first step of activity-based costing.
Activity-Based Costing: Indirect Costs
Costs not directly related to the production of a product, such as those related to marketing.
Indirect Cost Rate: Formula
Calculate by dividing the total indirect costs by the total number of products.
Activity-Based Costing (ABC): Uses in Service Businesses

These businesses can used the ABC method to analyze the costs generated by different departments.

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