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Ch 7: Activity-Based Costing

About This Chapter

This chapter uses engaging text and video lessons to detail the most essential information involved in activity-based costing. Quizzes included throughout the chapter will help you measure your progress in the lessons.

Activity-Based Costing- Chapter Summary and Learning Objectives

Activity-based costing is one of the costing systems used by accounting managers. In order to properly implement this system, managers must understand the steps involved. This chapter covers the essential information involved in activity-based costing. Our instructors outline the most important terms and concepts. Take the quizzes in each lesson to gauge your understanding of the subject. In these lessons, explore topics like:

  • What activity-based costing is, its benefits and its use
  • How activity-based costing is different than traditional costing
  • The definition of a cost driver and their importance
  • The steps to allocating overhead
  • What activity-based management is
  • The theory of constraints
  • Ways just in time inventory is used

Lesson Objective
Activity-Based Costing: Definition, Formula & Examples Summarize activity-based costing and learn how it is used in managerial accounting.
Comparing Traditional Costing & Activity-Based Costing Differentiate between a traditional costing system and activity based costing.
The Seven Steps of Activity-Based Costing Explain the seven steps involved in activity-based costing.
Cost Driver in Accounting: Definition, Analysis & Example Analyze cost drivers and learn the steps a company can take to analyze a cost driver.
Identifying Activity-Based Cost Pools & Drivers Distinguish cost drivers and assign cost drivers in order to compute cost per unit.
Allocating Overhead in Activity-Based Costing Systems Illustrate the steps involved in allocating overhead in activity-based costing systems.
Activity Levels in an Activity-Based Costing System Connect the four levels of costs, including output unit level and batch level.
Benefits & Limitations of Activity-Based Costing Compare the advantages and disadvantages of activity-based costing to define when it is the best system to use.
Activity-Based Management (ABM): Definition & Examples Classify activity based-management and learn its connection to activity-based costing.
Activity-Based Costing & Service Industries Consider the use of activity-based costing in the service and manufacturing industries.
Theory of Constraints: Definition & Examples Illustrate the Theory of Constraints using examples.
Implementing the Theory of Constraints (TOC) Diagram the implementation of the Theory of Constraints with examples of different methods.
Lean Manufacturing & the Theory of Constraints Focus on lean manufacturing and connect the relationship between lean manufacturing and the Theory of Constraints.
Just in Time Inventory: Definition, Advantages & Examples Evaluate what just in time inventory, JIT, is and how it controls production and inventory.

9 Lessons in Chapter 7: Activity-Based Costing
Test your knowledge with a 30-question chapter practice test
Comparing Traditional Costing & Activity-Based Costing

1. Comparing Traditional Costing & Activity-Based Costing

In this lesson, we'll compare traditional costing with activity-based costing in order to help students determine the advantages of one particular method of costing over another.

The Seven Steps of Activity-Based Costing

2. The Seven Steps of Activity-Based Costing

This lesson will help you understand why activity-based costing is used instead of traditional costing and teach you about the seven steps associated with it.

Identifying Activity-Based Cost Pools & Drivers

3. Identifying Activity-Based Cost Pools & Drivers

In this lesson, you'll learn about the usefulness of defining the activities needed in order to make your product. You'll see how activity-based cost helps you calculate a more accurate overhead cost.

Allocating Overhead in Activity-Based Costing Systems

4. Allocating Overhead in Activity-Based Costing Systems

In this lesson, you'll learn how you can calculate your overhead by figuring out the cost of each activity you do to make a product. You'll also read about dividing your costs into batch-related costs and per-unit costs.

Activity Levels in an Activity-Based Costing System

5. Activity Levels in an Activity-Based Costing System

With ABC, or activity-based costing, we must first identify into which activity category a cost should be placed. In this lesson, we learn about the four general groups associated with ABC: unit-based, batch-based, product-based, and facility-based costs.

Benefits & Limitations of Activity-Based Costing

6. Benefits & Limitations of Activity-Based Costing

Managers need the best information they can get about product cost so they can accurately determine a product's selling price. In this lesson, you'll learn about activity-based costing (ABC).

Activity-Based Management (ABM): Definition & Examples

7. Activity-Based Management (ABM): Definition & Examples

This lesson explains the concept of activity-based management and how it extends the use of activity-based costing. Learn how this costing method is used as a comprehensive management tool to reduce costs and improve processes and decision-making.

Activity-Based Costing & Service Industries

8. Activity-Based Costing & Service Industries

Activity-based costing is common in manufacturing, but can it be applied to service industries too? In this lesson you'll find out what activity-based costing is, how it works in service industries, and some of the benefits and challenges of using it.

Lean Manufacturing & the Theory of Constraints

9. Lean Manufacturing & the Theory of Constraints

In this lesson, you'll learn about lean manufacturing and the elimination of waste in the world of business. We'll define the term and build a connection to the theory of constraints.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
Not Taken
Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
Not Taken

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