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Chapter Summary

Section 22.1: Explain Why and How Activity-Based Costing Is Used​

  • Traditional costing may distort costs
  • ABC allocates costs based on activities
  • Activities cause costs, not products
  • ABC provides more accurate costs
  • Use when overhead is significant and products are diverse

Section 22.2: Calculate Activity-Based Product Costs​

  • Identify activities and create cost pools
  • Assign costs to activities
  • Identify cost drivers
  • Calculate activity rates
  • Allocate costs to products based on activity consumption

Section 22.3: Compare and Contrast Traditional and Activity-Based Costing Systems​

  • Traditional: Single rate, simple, may distort
  • ABC: Multiple rates, complex, more accurate
  • Choose based on business needs
  • ABC better for diverse products

Section 22.4: Compare and Contrast Traditional and Activity-Based Costing Methods​

  • Different philosophies
  • Different accuracy levels
  • Different complexity
  • Different decision support
  • Trade-offs between simplicity and accuracy

Section 22.5: Explain and Identify Cost Pools and Cost Drivers​

  • Cost pools group related costs by activity
  • Cost drivers measure activity consumption
  • Good drivers are causal, measurable, cost-effective
  • Driver rates = Activity cost ÷ Driver volume

Section 22.6: Luxembourg SME Activity-Based Costing Applications​

  • Service companies can use ABC
  • Manufacturing SMEs can use ABC
  • Restaurants can use ABC
  • Implementation steps and challenges
  • Simplified ABC for small businesses