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Questions and Answers
What is the purpose of tracing business sustaining costs?
What is the purpose of tracing business sustaining costs?
To assign costs that cannot be logically traced to products or customers to senior management or regulatory agencies.
Why should business-sustaining costs not be allocated to products or customers?
Why should business-sustaining costs not be allocated to products or customers?
Allocating them to products or customers would be misleading and would overstate their costs.
What are business-sustaining cost objects in the context of ABC?
What are business-sustaining cost objects in the context of ABC?
Senior management and regulatory agencies.
Can business-sustaining costs be logically traced to specific products or customers?
Can business-sustaining costs be logically traced to specific products or customers?
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Give an example of a business-sustaining cost activity mentioned in the text.
Give an example of a business-sustaining cost activity mentioned in the text.
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How are business-sustaining costs different from other activity costs?
How are business-sustaining costs different from other activity costs?
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What is the significance of tracing $30 of support activities to other types of activities in the ABC cost assignment network?
What is the significance of tracing $30 of support activities to other types of activities in the ABC cost assignment network?
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Why are business-sustaining costs absorbed as calculated costs into senior management and regulatory agencies?
Why are business-sustaining costs absorbed as calculated costs into senior management and regulatory agencies?
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Explain how business-sustaining costs should be treated in cost assignment.
Explain how business-sustaining costs should be treated in cost assignment.
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Why is it important to have an enterprise-wide view of an ABC cost assignment network?
Why is it important to have an enterprise-wide view of an ABC cost assignment network?
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Study Notes
- Activity-based costing (ABC) involves tracing costs from activity to activity based on cause-and-effect relationships.
- The ABC model simplifies by using resource pools to categorize expenses before assigning them to activities based on demand.
- For a manufacturing company, costs directly related to activities like "performing maintenance" and "operating the tool room" are accumulated separately.
- The cost assignment view converts resource expenses into activity costs and then into final cost objects like products or customers.
- ABC emphasizes the cost assignment view over the process view, which sequences activity costs through a business process.
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Description
Learn about the Activity-Based Costing (ABC) model, which involves tracing costs from activity to activity based on cause-and-effect relationships. Understand the relationships between indirect work activities, other activities, and cost objects. Some organizations simplify the ABC model using the concept of resource expenses.
