Chapter 9 Cost

Concepts

Cost Concepts

Activity-based costing
(ABC)

Cost driver
Cost hierarchy

Death spiral

Costing method that first assigns

costs to activities and then assigns
them to products based on the
products consumption of
activities.
Factor that causes, or drives,
costs.
Classification of cost drivers into
general levels of activity, volume,
batch, product, and so on.
Process that begins by attempting
to increase price to meet reported
product costs, losing market,
reporting still higher costs, and so
on, until the firm is out of
business.

Cost Concepts

Department allocation
method

Plantwide allocation
method

Time equations

Allocation method that has a

separate cost pool for each
department, which has its own
overhead allocation rate or set
of rates.
Allocation method using one
cost pool for the entire plant.
It uses one overhead allocation
rate, or one set of rates, for all
of a plant's departments.
Time equations allow
managers to adjust the times
for orders with different
characteristics.