ABC vs. Traditional Costing Systems
5 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary focus of Activity-Based Costing (ABC)?

  • Automated calculations
  • Products or outputs
  • Total overhead costs
  • Activities as the cost driver (correct)
  • How does ABC determine the cost of products?

  • By assigning a flat rate to each product
  • By summing up total costs divided by total units
  • By accumulating costs from each activity contributing to the product (correct)
  • By averaging costs across all activities
  • What is a characteristic of traditional costing systems when compared to ABC systems?

  • They provide detailed information about each activity.
  • They assign overhead costs using a single rate. (correct)
  • They are more complex in terms of calculations.
  • They use multiple cost pools for overhead allocation.
  • What is the implication of the cause-and-effect relationship in ABC costing?

    <p>There is a high probability the cost driver changes activity costs.</p> Signup and view all the answers

    What denotes the computational complexity of ABC systems?

    <p>They involve advanced calculations reflecting numerous activities.</p> Signup and view all the answers

    Study Notes

    ABC vs. Traditional Costing Systems

    • Activity Information: ABC provides detailed information about individual activities within a department, while traditional systems offer summarized cost information for entire functions.
    • Focus: ABC focuses on activities as the main cost driver, whereas traditional systems use products or outputs as the driving factor.
    • Cost Driver: ABC uses specific cost drivers for each activity, measured by the activity's outputs. Traditional systems employ a single overhead rate calculated by dividing total overhead costs by the volume of the cost driver.
    • Allocation Basis: ABC utilizes multiple cost pools, each allocated to a specific activity. Traditional systems typically use a single cost pool for allocating overhead costs.
    • Cause-and-Effect Relationship: ABC prioritizes a high probability that the cost driver directly influences the cost of an activity (for example, more cases lead to higher costs). Traditional systems' cause-and-effect relationship might be less reliable or precise.
    • Cost Determination: ABC determines product costs by accumulating the costs of each activity contributing to the product. Traditional systems divide total costs by the total units of output to determine product costs.
    • Computational Complexity: ABC calculations are advanced. Traditional systems allow for both manual and advanced calculations.
    • ABC systems are more complex but provide more accurate cost determination than traditional systems.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    This quiz explores the differences between Activity-Based Costing (ABC) and traditional costing systems. It highlights various aspects such as focus, cost drivers, allocation bases, and the cause-and-effect relationships that underpin these methodologies. Test your knowledge on how these systems operate within departments and their implications for cost management.

    More Like This

    Cost Accounting Concepts Quiz
    10 questions
    Activity Based Costing Overview
    10 questions

    Activity Based Costing Overview

    RevolutionaryZombie7464 avatar
    RevolutionaryZombie7464
    Activity Based Costing Overview
    18 questions

    Activity Based Costing Overview

    WellEstablishedWisdom avatar
    WellEstablishedWisdom
    Use Quizgecko on...
    Browser
    Browser