Session:6 Activity-Based, Variable, and Absorption Costing
Key Terms
Principles of Accounting, Volume 2: Managerial Accounting | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-managerial-accounting
- absorption costing
- (also, full costing) system of accounting where all costs are treated as product costs regardless of whether they are variable or fixed
- activity base
- activity that has been considered to be a primary driver of overhead costs and for which, traditionally, direct labor hours or machine hours were used
- activity-based costing
- process of assigning overhead to products based on the cost driver for each activity cost pool
- batch-level cost
- one that is incurred when a group (or batch) of items is produced
- common fixed costs
- expenses that are shared among all divisions or production units and include such costs as the CEO salary and corporate headquarter costs
- cost driver
- activity that is the reason for the increase or decrease of another cost; examples include labor hours incurred, labor costs paid, amounts of materials used in production, units produced, or any other activity that has a cause-and-effect relationship with incurred costs
- cost pool
- accumulation of costs that are incurred during the production of the activities included in the activity cost pool
- direct labor
- labor directly related to the manufacturing of the product or the production of a service
- direct materials
- materials used in the manufacturing process that can be traced directly to the product
- expense recognition principle
- (also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated
- factory-level cost
- one that is incurred when production occurs, such as production supervisor salary
- indirect labor
- labor not directly involved in the active conversion of materials into finished products or the provision of services
- indirect materials
- materials used in production but not efficiently traceable to a specific unit of production
- manufacturing overhead costs
- all manufacturing costs excluding direct material and direct labor
- product-level cost
- one that occurs as support of the product, such as engineering
- traditional allocation
- allocation of factory overhead to products based on the volume of production resources consumed
- unit-level cost
- one that is incurred for each unit produced
- variable costing
- (also, direct costing or marginal costing) system of accounting where only variable costs are treated as product costs