Name: Vanessa

Student ID: 008202200037

BACKGROUND:
- Simple methods: can be inaccurate
- Complex methods: usually more accurate

PLANTWIDE & DEPARTMENT OVERHEAD CALCULATIONS

Plantwide overhead rate:
Total estimated overhead / Total estimated base

Dept overhead rate: Similar concept, except the overhead cost pool select by depart

BOARD AVERAGING
- In the past, entity produce limited variety of goods so their indirect cost relatively small,
their allocating was simple: averages to allocate costs uniformly regardless of how they
are actually incurred.
- But at the end: products usually get overcosted / undercoat

OVERCOSTING: product consumes low resource but allocated high cost per unit
UNDERCOSTING: product consumes high resource but allocated low cost per unit

CROSS-SUBSIDIZATION
- The overcosted product take too much cost, so the product seems unprofitable
- The undercosted product take too little cost, so the product seems profitable then the
actual profit

5 STEP DECISION MAKING PROCESS

1. Identify the problems & uncertainties
2. Obtain information
3. Make predictions about the future
4. Make decisions by choosing among alternatives
5. Implement the decision, evaluate performance and learn

ABC VS SIMPLE COSTING SCHEMES

- ABC is generally to produce superior costing, we use multiple drivers across multiple
levels
- ABC will good if we can selected the drivers goods

SIGNALS THAT SUGGEST ABC IMPLEMENTATION COULD HELP A FIRM:

- Amounts of indirect costs allocated using ½ cost pools
- All or most indirect costs identified as output unit level costs
- Products make diverse demands on resource
BEHAVIORAL ISSUES IN IMPLEMENTING ABC
- Gain the support of top management
- Create a guiding coalition with managers
- Educate and train employees in ABC
- Seek small short-run success
- Recognize that abc is not perfect

ACTIVITY-BASED MANAGEMENT
A method of management that uses ABC as an integral part in critical decision making
- Pricing and product mix decisions
- Cost reduction and process improvement decisions
- Design decisions
- Planning and managing activities

ABC AND SERVICE/MERCHANDISING FIRMS

- Health care
- Banking
- Telecommunications
- Retailing
- Transportation