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5: Activity-Based Costing

  • Page ID
    65707
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    • 5.1: Absorption Costing
      This page discusses absorption costing, which includes all manufacturing costs as product costs under GAAP. It covers calculation methods for product costs and highlights elements in the income statement such as sales and gross profit. An example from Bradley Company demonstrates these concepts, including net operating income. While absorption costing is important for financial reporting, it may mislead due to fixed costs being assigned to units produced instead of sold.
    • 5.2: Chapter 4 Study Plan
      This page outlines a study plan for Activity Based Costing, emphasizing knowledge of key terms like cost drivers, reasoning through cost pools and margins, and skill development in calculating rates and margins. The plan focuses on understanding and applying Activity Based Costing concepts in practical situations using both activity-based and traditional costing methods.
    • 5.3: Variable Costing
      This page discusses variable costing, which categorizes fixed manufacturing costs as period costs and includes only variable costs in product costs. It emphasizes its use for internal financial statements, highlighting a contribution margin format. An example from Bradley Company demonstrates how to calculate product cost per unit and presents a contribution margin income statement. The key takeaway is its focus on variable costs, making it relevant for decision-making based on production levels.
    • 5.4: Comparing Absorption and Variable Costing
      This page compares Bradley's income statements under absorption and variable costing, highlighting a $600 income difference due to differing treatments of fixed manufacturing overhead. Absorption costing includes fixed overhead in inventory, while variable costing treats it as a current expense, impacting income and inventory valuations. Variable costing shows lower income when production exceeds sales.
    • 5.5: Chapter 4 Key Points
      This page discusses three methods of overhead allocation: Plantwide Overhead, which applies one rate for the entire company; Departmental Overhead, which uses varied rates based on departmental costs; and Activity-Based Overhead, which connects costs to specific activities and cost drivers, each with its own rate. Actual costs are then multiplied by these rates to determine the overhead applied.
    • 5.6: Glossary
      This page defines key costing terms: "Activity-based costing" allocates costs through specific activities linked to products; an "activity center" is a unit performing these activities; and a "cost driver" is any transaction or activity resulting in costs.
    • 5.7: Chapter 4- Exercises
      This page discusses performance measures, the significance of customer complaints and machine downtime, and compares activity-based costing (ABC) with traditional costing methods. It highlights the need for accurate cost allocation and challenges faced in service sectors. Additionally, it examines the implementation of ABC in two businesses, emphasizing its benefits for financial decision-making.


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