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Chapter 3 Lecture Notes
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Study Objectives
CHAPTER4
Activity-Based Costing
Managerial Accounting, Fourth Edition
Study Objectives
ACTIVITY-BASED COSTING VERSUSTRADITIONAL COSTING
Traditional Costing SystemsAllocates overhead using a single predeterminedrate.J
ob order costing: direct labor cost is assumedto be the relevant activity base.Process costing: machine hours is the relevantactivity base.
Assumption was satisfactory when direct laborwas a major portion of total manufacturing costs.
Wide acceptance of a high correlation betweendirect labor and overhead costs.
Study Objectives
Traditional Costing Systems
Direct labor is still often the appropriate basis forassigning overhead costs when:
Direct labor constitutes a significant part of total product cost
and
High correlation exists between direct labor and changes in overhead costs
Overhead Direct Labor ProductsCosts Hours/Dollars
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ch04
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