During the last century, production cost structures have significantly changed (see Exhibit 18.1 on text page...

 

 

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During the last century, production cost structures have significantly changed (see Exhibit 18.1 on text page 18-4). Discuss the reasons for this trend which have resulted in Activity Based Costing (ABC) becoming such an important method for determining a product's costs. Respond to other posts on whether you agree or not. If you disagree, state your rcasons. HIBIT 10.1 Changing Production Cost Structures Acvity-Based Costing Cutomer Proftatny, and Activity-Baed Maragement 18-4 Percent of Product Cost Manutacturing Overhoad Costs Direct Materiats and Direct Labor Costs Mid-20th Century Early 21st Century ACTIVITY-BASED COSTING The manufacturing overhead cost pool has been referred to as a "blob" of common costs. The constant erowth of costs classified as overhead has forced us to search for increasingly detailed methods to analyze the concept of these costs. If overhead costs are low in comparison with other costs and if factories produce few products activity-based in large production runs, the use of an overhead rate based on direct labor hours or machine hours may be costing (ABC) and adequate. However, as the amount of overhead costs continues to grow, as manufacturing facilities produce how it is appled, awider variety of products, and as competition intensifies, the inadequacies of a single overhead rate based in a single cost driver such as direct labor hours become evident. Fortunately, advances in information technology and the declining cos of computerized informa- tion systems have facilitated the Increased complexity of the prod alon nvironment, coupled with faster per compating technol- P3.ave rise to the emergence lopment of activitytused costin h198s and 1990s. Activity-based costing inres ermining the cou of activities cbjects on the basis of the cos The concepts underlying Ai nsummarized in the following w ea nd illustrations: LO2 Understand lopment and maintenance of increngly detailed databases. The T their costs to cost tilization of unis of activity. L Activities performed to fill er needs consume resources tha s noney Costs served by Fconsume Resources have Astividion 4 The cost of resources consumed by activities should be assigned to cost objects on the basis of the units of activity consumed by the cost object. assigned to Activity Pools reassigned to Cost Objects coit object is typically a product or service provided to a customer. Depending on the information i of decision makers, as we will discuss later in this Module, the cost object might be the customer. To summarize, activity-based costing is a system of analysis that identifies and measures the cog ey activities, and then traces these activity costs to products or other cost objects based on the quan- activity consumed by the cost objects. ABC is based on the premise that activities drive costs and ed on units of activity utilized by the cost object. Research Insight box explains, ABC was actually used first to improve cost management before n used for product costing. During the last century, production cost structures have significantly changed (see Exhibit 18.1 on text page 18-4). Discuss the reasons for this trend which have resulted in Activity Based Costing (ABC) becoming such an important method for determining a product's costs. Respond to other posts on whether you agree or not. If you disagree, state your rcasons. HIBIT 10.1 Changing Production Cost Structures Acvity-Based Costing Cutomer Proftatny, and Activity-Baed Maragement 18-4 Percent of Product Cost Manutacturing Overhoad Costs Direct Materiats and Direct Labor Costs Mid-20th Century Early 21st Century ACTIVITY-BASED COSTING The manufacturing overhead cost pool has been referred to as a "blob" of common costs. The constant erowth of costs classified as overhead has forced us to search for increasingly detailed methods to analyze the concept of these costs. If overhead costs are low in comparison with other costs and if factories produce few products activity-based in large production runs, the use of an overhead rate based on direct labor hours or machine hours may be costing (ABC) and adequate. However, as the amount of overhead costs continues to grow, as manufacturing facilities produce how it is appled, awider variety of products, and as competition intensifies, the inadequacies of a single overhead rate based in a single cost driver such as direct labor hours become evident. Fortunately, advances in information technology and the declining cos of computerized informa- tion systems have facilitated the Increased complexity of the prod alon nvironment, coupled with faster per compating technol- P3.ave rise to the emergence lopment of activitytused costin h198s and 1990s. Activity-based costing inres ermining the cou of activities cbjects on the basis of the cos The concepts underlying Ai nsummarized in the following w ea nd illustrations: LO2 Understand lopment and maintenance of increngly detailed databases. The T their costs to cost tilization of unis of activity. L Activities performed to fill er needs consume resources tha s noney Costs served by Fconsume Resources have Astividion 4 The cost of resources consumed by activities should be assigned to cost objects on the basis of the units of activity consumed by the cost object. assigned to Activity Pools reassigned to Cost Objects coit object is typically a product or service provided to a customer. Depending on the information i of decision makers, as we will discuss later in this Module, the cost object might be the customer. To summarize, activity-based costing is a system of analysis that identifies and measures the cog ey activities, and then traces these activity costs to products or other cost objects based on the quan- activity consumed by the cost objects. ABC is based on the premise that activities drive costs and ed on units of activity utilized by the cost object. Research Insight box explains, ABC was actually used first to improve cost management before n used for product costing.

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Activitybased costing ABC may be a costing method that identifies activities in a company and assigns the price of every activity to all or any products and services per the particular consumption by ... View the full answer