# data[].attributes.body
Hey Everyone,

Great job at answereing the question as a team! Maybe try and give a few more basic examples in the future but overall good job!

# data[].attributes.body
Hi Oliver,

Market-Based Pricing is based on the sales price for a comparable (identical) product by an external supplier. This would be an example of an arm’s length transaction and would be ideally used in a perfectly competitive market where the actions of one individual entity cannot influence the market price, and also when the selling division does not have any idle capacity. This method does not always work because the product being transferred might be a work-in-process that does not get traded in an active market.

Cost-Based Pricing is based on the variable costs incurred by the selling division to sell and deliver the goods to the buying division. This method works if the selling division has idle capacity. The downside to this approach is that there is less incentive for the division to control costs.

Negotiated Pricing involves a negotiation between managers of the buying and selling division. This would require a calculation of the maximum transfer price (the selling price for an external supplier) and the minimum transfer price (based on the variable costs for the selling division and any loss of contribution margin incurred from not selling some or all of the items externally).

Transfer pricing can be a hotly contested issue. This article outlines one of the recent landmark rulings in Canada:

http://business.financialpost.com/legal-post/glaxosmithkline-transfer-pricing-case-settled

# data[].attributes.body
Hi Oliver,

As the rest of the class have mentioned, EOQ is a model that managers use when they want to decide on how much inventory they should purchase or order while minimizing the cost to purchase and to hold that inventory.
When i was working for Walmart, my manager was using  the EOQ model to determine how much they should order everyday This allowed him to predict ahead of time what the carrying costs, demand, purchase - order lead-time and order time would be. Hence we never or rarely had any stockouts. For example, if let's someone bought a box of tomatoes, they would get replenished the next day or if not the same day. Walmart was also using the JIT strategy which helped to eliminate non value added of spoilage, carrying costs and improve customer satisfaction (fresh food and no stockouts).

2) There are three types of transfer pricing methods:

- Market based transfer price; This approach is set at market price. It's best to use it when the selling division has no idle capacity or in a perfect competitive market.

- Cost based transfer price; This approach is uses three methods ( variation costs, variable and fixed production costs, Full costs (mostly used) and cost plus markup). It;s best to use it when the market prices of the product cannot be determined

- Negotiated transfer price; the approach is based on a negotiated price which is an agreed upon price between selling and buying divisions. This can be between an internal or external division.  It is computed this way:

Min.transf, price = VC per unit + Lost contribution margin.

I hope this helps.

# data[].attributes.body
EOQ is the ideal order quantity where cost to purchase and cost to hold inventory are minimized.
And here is more detailed explanation and  examples of EOQ:
http://www.prenhall.com/divisions/bp/app/russellcd/PROTECT/CHAPTERS/CHAP12/HEAD03.HTM

To add on what Jacob said:
Market-base TP is base on the market price. It is best when there is no ideal capacity, which means that there is no difference when selling externally and internally. The market base method is good when 1)perfectly competitive.2)min. inter-dependency of divisions. 3) No additional cost/benefit to org. as whole from buying or selling externally instead of internally.
Cost-base TP is the price depend on cost of production and used when there is no market.
Calculation of min. TP=
veritable cost per unit
+  opportunity cost of making transfer(lost sale) per unit
+/- any other incremental cost/benefits

# data[].attributes.body
ECONOMIC ORDER QUANTITY (EOQ) MODEL

The economic order quantity (EOQ) is the order quantity that minimizes total holding and ordering costs for the year. Even if all the assumptions don’t hold exactly, the EOQ gives us a good indication of whether or not current order quantities are reasonable.

EOQ =√2DP/C

Problem

Pam runs a mail-order business for gym equipment. Annual demand for the TricoFlexers is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?

√2*16000*50/2.50 =800 units per order

Market rate transfer price. The simplest and most elegant transfer price is to use the market price. By doing so, the upstream subsidiary can sell either internally or externally and earn the same profit with either option. It can also earn the highest possible profit, rather than being subject to the odd profit vagaries that can occur under mandated pricing schemes.

Cost-based transfer pricing. You can have each subsidiary transfer its products to other subsidiaries at cost, after which successive subsidiaries add their costs to the product. This means that the final subsidiary that sells the completed goods to a third party will recognize the entire profit associated with the product.

Negotiated transfer pricing. It may be necessary to negotiate a transfer price between subsidiaries, without using any market price as a baseline. This situation arises when there is no discernible market price because the market is very small or the goods are highly customized. This results in prices that are based on the relative negotiating skills of the parties.
http://www.accountingtools.com/transfer-pricing

\

# data[].attributes.body
EOQ stands for Economic Order Costing and is "the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory. EOQ is also referred to as the optimum lot size," according to accountingcoach.com. A useful video explaining EOQ and how to calculate it is as follows:
https://www.youtube.com/watch?v=AYpjPWmlyHM

The three transfer pricing methods include: (1) market-based transfer prices, (2) cost-based transfer prices, and (3) negotiated transfer prices. Market-based transfer prices occur when the transfer price is set at the market price, or
the price of a similar product or service that is on the open market (example: from competitors or trade associations). Cost-based transfer prices occur when the transfer price is determined based on the costs of producing the intermediate
product. Negotiated transfer prices occur when the price comes from discussions between the selling and buying divisions.

# data[].attributes.body
Transferred-in costs: costs that are incurred in the previous departments that are carried forward to the next process in the production cycle. As physical units move from one department to the next, their costs per EU move with them.

Spoilage and reworked units (job costing): job costing systems generally distinguish between normal spoilage attributable to a specific job from normal spoilage common to all jobs. Abnormal spoilage is the net loss. There are three types of rework: (1) normal rework attributable to a specific job, (2) normal rework common to all jobs, and (3) abnormal rework.

# data[].attributes.body
EOQ - Economic Order Quantity
The economic order quantity is the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory.

Here are examples from websites.
http://accountingexplained.com/managerial/inventory-management/economic-order-quantity
http://www.accountingexplanation.com/economic_order_quantity_eoq.htm

# data[].attributes.body
November 21, 2016

NEGOTIATED TRANSFER PRICING
I can start this week's question off my explaining one of the transfer pricing methods and some of my colleagues can explain the other 2 methods.

Negotiated transfer pricing is the least commonly used because it can take time and may lead to inconsistent results. The price agreed upon actually results from discussions between the selling and buying division managers rather than simply looking at market value or cost. Some advantages of this method is that it gives managers autonomy (good for decentralization) and division managers often have most relevant and up-to-date information .

I can introduce the upper limit and lower limit and another one of my colleagues may explain this concept further.
1. The upper limit is set by the buying division, it is what they would pay on the external market (would not want to spend any more than this).
2. Whereas the lower limit is set by the selling division after examining: cost to make, idle capacity, external price...  (would not want to accept any less than this)

I hope this helps! More information can be found HERE

# data[].attributes.body
Hi Oliver,

Transferred-in costs differ from beginning inventory because they are costs of switching a product or service between different departments. Where beginning inventory is just the cost of inventory at the beginning of the year. I found the following video with a in depth example to be helpful. https://www.youtube.com/watch?v=_H22Zw0KI1M
In terms of spoilage, rework, and scarp I found this video with a real life example very helpful.

https://www.youtube.com/watch?v=Fte2o9_v-T0

# data[].attributes.body
Hi Oliver,

Spoilage is any output that does not meet the standards or composition desired by the entity. We can break the term down further into normal and abnormal spoilage. Normal spoilage is anticipated in a production process, whereas abnormal spoilage is unexpected and/or avoidable.

In a job-costing system, we also distinguish between normal spoilage common to all production (which is costed to manufacturing overhead) and normal spoilage for a specific job. Abnormal spoilage, meanwhile, is charged to an abnormal loss account.

Reworked units are any units that were initially unacceptable outputs, but then received additional labour/materials to become good and sellable units. Once again, a job-costing system differentiates between normal rework common to all jobs (assigned to MOH) and normal rework for a specific job (charged to the work in process control for the specific job). Any abnormal rework would be highlighted by being charged to an abnormal rework loss account.

Rework can be costly! While we’ve been focusing on manufacturing, below is an example of some of the costs that might arise if rework is required in production accounting itself:

http://www.zedi.ca/blog/the-high-cost-of-rework-in-production-accounting

# data[].attributes.body
Transferred in  costs (previous department costs)-are costs incurred in a previous department that are carried forward as part of the products costs as it moves to a subsequent department for more processing. The amount transferred -in will be amount transferred out from the previous department and treated as “materials “contributed at the beginning of the next department.

Spoilage and Rework in Job Order Costing System

What Is Rework?

Rework is that part of the final produce which has not been accepted by the client because it does not meet the required specifications. However, those specifications can be met by working on the item once again. Hence the name rework.

What Is Spoilage?

Spoilage is also that part of the final produce that does not adhere to the specifications given by the client and is therefore not accepted by them. The difference between rework and spoilage is that, rework will be reworked on and sold at full price whereas spoilage is considered to be defective goods and is discarded at throw away prices in the market.

Rework and spoilage are closely linked concepts. If firms have a high percentage of rework, they will also have a lot of items in their spoilage.

Why Should We Focus On Rework And Spoilage?

Rework and spoilage are additional cost for the company. Since the company is in the business to make a profit, this gets passed on to the customer in the form of additional costs. This makes the company uncompetitive in comparison to its competitors. The company with the lowest amount of rework and spoilage costs will have the least loss and hence they will be able to provide the best deal to the customer. Reducing rework and spoilage is therefore strategic in nature and must be paid careful attention to.

Job Costing and Rework:

Job costing has created a system wherein rework and spoilage costs are allocated to the respective job where the loss is supposed to have occurred. This helps the company find out the types of jobs it is efficient and not efficient in and therefore work on reducing costs:

Normal Rework- Specific Job: The first type of rework and spoilage cost is the one that can be attributed to a specific job. The treatment in this case is simple. It is charged to the specific job account. However, distinction must be made between normal and abnormal loss. Normal loss occurs when production is efficient. If it goes beyond a certain level, it becomes abnormal rework and spoilage which is treated differently.

Normal Rework- General: The second category is rework and spoilage costs that cannot be allocated to a specific job. These costs must therefore be spread out amongst all the jobs that were performed in that period. These costs therefore get added to non-manufacturing overheads.

Abnormal Rework: Abnormal rework and spoilage costs which were over and above the estimation of the company are charged to a separate loss account. This helps focus management attention on them

# data[].attributes.body
To add what Jacob said:
Rework is that part of the final produce which has not been accepted by the client because it does not meet the required specifications. However, those specifications can be met by working on the item once again. Hence the name rework.

Here are 2 website I think could help you understand concept better;
http://nraomtr.blogspot.ca/2011/12/costing-for-spoilage-rework-and-scrap.html

https://www.managementstudyguide.com/spoilage-and-rework-in-job-order-costing-system.htm

# data[].attributes.body
I think my group members explain pretty well on transferred-in costs. basically it is a accumulated cost that pass between department along with products.
and here is a short video if you want  watch:https://www.youtube.com/watch?v=qTQL8UhwKs8

# data[].attributes.body
Hi Oliver, to add to what other students said, you can look at transferred-in costs as the money spent on switching the processing of a product or a service between departments of a company.
So between two departments, lets say A and B, these costs would be attributed to units from Department A. Also referred to as the accumulated cost of a product when it first arrives in a production department.

Read more: Transferred-In Costs Definition | Investopedia http://www.investopedia.com/terms/t/transferred-in-costs.asp#ixzz4QCJwLSuf
Follow us: Investopedia on Facebook

Read more: Transferred-In Costs Definition | Investopedia http://www.investopedia.com/terms/t/transferred-in-costs.asp#ixzz4QCJDjKyr
Follow us: Investopedia on Facebook

# data[].attributes.body
Hi Oliver, just to add to what has been said already.
Accounting Treatment Of Spoilage
Material damaged or destroyed in the course of a manufacturing process is spoilage. Manufactured goods of a low or inferior quality produced are also called spoilage.
Normal spoilage is included in the cost of the output in a single product line. In a multi-product context, spoilage is charged to the production overhead to record out of all the products. This means production overhead is made larger to spread spoilage over all products since the production overhead rate becomes greater. The abnormal spoilage cost is charged to the Profit and Loss account.
The spoilage arising on account of improper workmanship or malfunctioning of equipment is absorbed by good production treating it as charged to production overhead.
Also, check out this nice video on spoilage that i found on youtube. It gives a nice overview of what spoilage is and how we account it for. It's very

https://www.youtube.com/watch?v=Fte2o9_v-T0

# data[].attributes.body
Transferred-in Costs: The costs of goods manufactured, those physical units completed in a prior conversion process, are transferred out of the prior department during the current time period. These become the transferred-in costs for the next department in the conversion process. Basically, the costs incurred by one department can be moved to another department.

Here are some examples:
Weighted Average with Transferred-in Costs:
http://accountingexplained.com/managerial/cost-systems/process-costing-weighted-average
FIFO with Transferred-in Costs:
http://accountingexplained.com/managerial/cost-systems/process-costing-fifo

# data[].attributes.body
November 14, 2016

CHAPTER 18:
I think a good place to start is to explain what spoilage is. Another one of my colleagues can explain rework and give examples.

Definitions and Concepts:

Spoilage: This refers to any scrap materials or waste that results from the manufacturing process. An example is: cutoff material from a furniture manufacturer, spoiled food from a grocery store...
Spoilage can be broken down into 2 categories, normal and abnormal. Normal spoilage is a normal/standard amount of spoilage that results from everyday processes (difficult to avoid)
Abnormal spoilage is any spoilage that exceeds the normal amount (results from bad processes/poor quality materials...)

Accounting for Spoilage:

Normal spoilage is included in the standard production costs (COGS) whereas abnormal spoilage is considered to be an extra cost and is normally expensed in the period incurred.

Here is a video example that uses production at Ford to explain spoilage: https://www.youtube.com/watch?v=Fte2o9_v-T0

# data[].attributes.body
Hi Oliver,

I think some of my colleagues have answered your question quite well, but I thought I’d throw in my $0.02.

It’s a little bit hard to find real life examples of Variable Costing in a company (but see below), since Absorption Costing is what is used for preparing external financial statements. However, you could use variable costing for your own internal decision-making. If you don’t want to continually keep track of inventory with both methods, it is possible to make adjusting calculations at the end of the year. As I learned in my first year management accounting course, you would simply take the operating income from absorption costing, subtract the fixed costs in the ending inventory, and add any fixed costs that were in the opening inventory (and subsequently sold) to get the variable costing operating income.

Absorption costing will produce a higher income during a period in which inventory increases form the beginning of the period. Conversely, variable costing will result in a higher income during a period in which inventory decreases, since more of the fixed costs will be “sold” with the products that are sold in the period compared to the amount of fixed cost that will be added to the ending inventory and counted as an asset on the balance sheet.

In terms of a real-life example, CFO Magazine published an article highlighting how Ford, GM and Chrysler were able to use absorption costing to appear more profitable by producing well above consumer demand. However, it highlights the consequences of this decision: an impact on the consumer’s perception of brand, and also fees for maintenance of so many unsold cars sitting on lots. Worth a look!

http://ww2.cfo.com/management-accounting/2012/02/why-the-big-three-put-too-many-cars-on-the-lot/

# data[].attributes.body
The disadvantage of absorption costing may cause the incentive to overproduce: the managers can reduce the average cost per unit by increasing production and threreby shift more fixed costs to inventory, lead to increase operating income.
The disadvantage of variable costing that managers need to consider fixed costs when making long-term pricing.
Here have more Pros and Cons for the 2 costing system:

# data[].attributes.attachment_link.readable_text
If your small business is a manufacturing company, you have the choice of using absorption costing or variable costing in determining your profits. You must learn the implications of each before making this choice. While either method of accounting for costs is valid under generally accepted accounting principles (GAAP), the method you choose can affect your profit-reporting.

You must understand fixed overhead expenses in order to understand absorption costing and variable costing. Fixed overhead consists of expenses that do not change with your level of production. Examples of fixed overhead include rent, insurance, wages for permanent full-time employees, and lease payments on equipment. These expenses continue no matter what your level of sales or how much you manufacture.

Absorption costing is a method whereby you apply part of your fixed overhead costs to the cost of manufacturing products. You do this on a per-unit basis. Simply divide your fixed costs by the number of units you manufactured and sold during the period. The result is a cost per unit for each unit you made and sold.

Variable costing uses fixed overhead as a lump sum, rather than a per-unit, expense. Under this method, you include all your variable costs such as supplies, raw materials and shipping. You add the full cost of fixed overhead for the period. You do not figure these expenses on a per-unit basis. Instead you subtract them from your revenue figure as a lump-sum expense.

Absorption costing offers an advantage when you do not sell all of your manufactured products during the accounting period. As highlighted by a paper from MIT, the beneficial uses of absorption company become clear when you look at product manufacturing. You may have finished goods in inventory. Because you assign a per-unit amount for fixed expenses, each product in inventory has a value that includes part of the fixed overhead. You do not show the expense until you actually sell the items in inventory. This can improve your profits for the period.

Absorption costing can artificially inflate your profit figures in any given accounting period. Because you will not deduct all of your fixed overhead if you haven't sold all of your manufactured products, your profit-and-loss statement does not show the full expenses you had for the period. This can mislead you when you are analyzing your profitability.

Variable costing shows your profits after all the bills have been paid for the accounting period. Though you may not have received revenues for the products you manufactured because some could be in inventory, you show that you have paid all of your expenses for the period. When you finally sell the finished products in inventory, you have surplus income. As a lecturer at Sacramento State University points out, variable costing often works out better when sales are equal to, or greater than, production because of its effect on inventory.

Variable costing shows full payment for fixed-overhead expenses for the accounting period. Even if you don't sell all the products you make, you must deduct the full cost of fixed overhead. This means you show less profit for the period because you show your complete overhead expense even when you haven't sold all of your products. You show reduced income because of unsold products but full expenses for overhead.

# data[].attributes.attachment_link.title
Advantages & Disadvantages of Using Absorption Vs. Variable Costing

# data[].attributes.attachment_link.description
The advantages and disadvantages of absorption and variable costing are best illustrated when looking at manufacturing processes. While either can be acceptable under GAAP rules, you should understand each.

# data[].attributes.body
Here is another example (from a website) to help understand the difference between absorption costing and variable costing.
http://www.accountingformanagement.org/variable-vs-absorption-costing/

# data[].attributes.body
October 15, 2016
One important difference between the absorption and variable costing is the difference in income:

The income statements prepared under absorption costing and variable costing usually have different net incomes. This is due to the timing differences for when the major fixed expenses actually hit the income statement. In absorption costing, the fixed costs are included in inventory so if only a portion of the inventory produced in that period is sold in that period, there will still be some fixed costs included in the ending inventory (not yet expensed since the units have not been sold). However, under variable costing, the fixed costs are expensed as period costs so the entire amount of fixed costs in a given period  will hit the income statement. This creates a difference in the net incomes reported under the two methods if all else remains the same. I hope that helps a bit!

See HERE for an example

# data[].attributes.body
·         Absorption costing(full absorption costing);This is a method of inventory valuation in which inventory “absorbs “both variable and fixed manufacturing costs as inventoriable costs and all non-manufacturing costs as period costs and are expensed.

-  The production costs are transferred from inventory to COGS when the goods are sold and the timing of recognition of COGS is matched with the incoming revenue.

· Variable (direct) costing; This is a method of inventory valuation in which only variable manufacturing costs are included as inventoriable costs and all fixed and non-manufacturing costs are classified as period costs expensed during the specific time period they are incurred. The variable costs of production are transferred from inventory to COGS when the goods are sold.

The main difference is that in absorption costing the fixed manufacturing costs are capitalized whereas in variable costing only variable manufacturing are capitalized as inventoriable cost

# data[].attributes.body
2. Standard costing – is the practice of substituting an expected cost for an actual cost in the accounting records and then periodically recording variances showing the difference between the expected and actual costs.

Difference;

Standard costing uses entirely predetermined costs for all aspects of products while normal costing uses actual costs for the materials and labour components.

4. Fixed Overhead Variances

•FOH Budget Variance = FOH Budget - FOH Actual

•FOH Volume Variance = FOH Budget - FOH Applied

– If under applied, then Unfavourable

– If over applied, then Favourable

# data[].attributes.body
Hey everyone, good job so far at answering the question and each trying to address a part of a question as opposed answering it fully which can get repetitive! Remember for the rest of the group to contribute to fully answer all aspects of the question and build on others responses.

# data[].attributes.body
Static budget, also known as the master budget, is when the level output is not changed once it is set, regardless of changes in circumstances. A flexible budget is when changes in the actual level of output, actual revenues and cost drivers are adjusted and a new budget with the adjusted amounts is created.

Standard costing is when standards, or targets, are established for direct material and direct labor whereas normal costing uses actual direct cost rates to assign direct costs.

# data[].attributes.body
Oct 4, 2016
Attached is a document explaining some of the variances and where they come from. It also shows the hierarchy of the variances and how they relate to one another.

And here are the variances that were given as well as some additional explanations where necessary.
____________________________
Fixed MOH Variances:

1. FMOH Volume Variance:

= Budgeted FOH – (FOH Allocated to Actual Output * Budgeted FOH Rate)

Note:
OH overapplied = favourable, underapplied = unfavourable

2. FMOH Budget Variance:

= Actual Cost – Budgeted Amount

____________________________

Variable MOH Variances:

1. Static Budget Variance:

= Actual Results – Static Budget Amount

2. VMOH Flexible Budget Variance:

= Actual Results – Flexible Budget Amount

3. VMOH Sales Volume Variance:

= Flexible Budget Amount – Static Budget Amount

4. VMOH Rate (Spending) Variance:

= (AR – SR) * AH                       aka (Actual Rate – Standard Rate) * Actual Hours

5. VOH Efficiency Variance:

= (AH – SH allowed) * SR      aka (Actual Hours – Standard Hours Allowed) * Standard Rate

Note: SH Allowed = Number of hours that should have been used (based on actual units and standard hours per unit)
____________________________
Additional Resources:
More information on VMOH variances can be found HERE
More information on FMOH variances can be found HERE
____________________________

# data[].attributes.body
To start answering some of the questions.

1. Static budget is based on one level of output; it is not adjusted or altered after it is set.
Flexible budget is adjusted in accordance with ensuing changes in either actual output or actual revenue and cost drivers.

2. Standard costing is a predetermined average cost per input or a predetermined average total input per unit of output.
Normal costing is the standard or predetermined or budgeted indirect cost-allocation rates to assign overhead costs but actual direct cost rates to assign direct costs.

# data[].attributes.body
You use estimations to calculate overhead. If the allocated amount of costs is greater than the actual amount, overhead is over applied. If the allocated amount of costs is less than the actual amount, overhead is under applied.

Some clarification on costing methods:
Traditional costing: assigns overhead based on the volume of a cost driver and uses a single flat rate (average rate) to allocate costs
Activity based costing: assigns the cost of each activity based on its actual consumption of resources
Example of ABC: manufacturing companies, construction companies, health care, etc.

# data[].attributes.body
Underapplied overhead occurs when the allocated amount of costs is less than the actual amount. Overapplied overhead occurs when the allocated amount is more than the actual amount. There is a difference(variance) because in the beginning of the accounting period we are estimating using different methods.

Traditional costing versus activity based costing. Traditional costing separates costs in manufacturing and non-manufacturing costs pools, where as activity based costing costs into different benefits such as design level, shipment level, product level, and facilities level.

Examples: Traditional --> Plastic Water Bottles, Activity --> Wedding Rings

# data[].attributes.body
Hey guys, good job with the answers so far. Make sure everyone is posting and adding a little bit more to help each other out! Nice job on using a link to another website.

# data[].attributes.body
Hi there, I'm Adam. I'm originally from Montreal but grew up a Sens fan (fortunately, or maybe unfortunately). I just registered in the class, which is why I'm only posting this now. Looking forward to learning from you all as I get up to speed!

# data[].attributes.body
Sept. 21, 2016
Here is a bit to help:

When calculating overhead, we use estimated rates (estimated hours...) based on cost drivers and a budgeted overhead rate. This leads to a variance in the amount of overhead applied and actually incurred because our estimates are rarely exact. If the amount of overhead applied is greater than the actual amount incurred during that period, this is overapplied. The opposite can be said for underapplied overhead.

Secondly,

Traditional costing assigns overhead costs to products based on the value of one cost driver using an average rate across all activities. This is easy but can be ineffective because some projects/products can use a lot of one cost driver, and little of another but the allocation of overhead only looks at one driver. This gives an inaccurate representation of the costs incurred (some projects look very profitable when they may not be, and vice versa).
Pros:

Easy to use and implement

Cons:

Costs may not be appropriately assigned

Can lead to poor decisions

Disregards other cost drivers that contribute to the total cost

Activity based costing is when a company looks at the major activities that it performs and assigns a cost based on those activities. Then each product is assigned costs based on the amount of each activity it uses. Some examples of companies that use ABC are: audit firms, custom furniture manufacturing... (where various costs are not incurred evenly among projects).
Pros:

Greater accuracy

Can easily compare products

Management can make better decisions

Cons:

Can be very costly and time consuming

More information on both methods can be found HERE

And a video explaining some of the concepts behind ABC and traditional costing can be found HERE

# data[].attributes.body
Oliver came to my office today for some help... please watch the video and work together to help him!  Here is a summary of his questions:
CH 4: understanding conceptually why there ends up being over or under applied OH (walk through the process)
CH 5: Difference between traditional costing and activity based costing & examples of companies that would use ABC.

# data[].attributes.body
I look forward to working with you all this semester. Thank you for everyone posting their introductions. Remember that you can add different forms of media in here like videos, pictures, and links to websites that you found useful and relevant to the course matieral!

# data[].attributes.body
Hello everyone! My name is Sacha and I am in my fourth year, concentrating in accounting. I'm from Montreal and enjoy painting and snowboarding. I look forward to working with all of you this semester :)

# data[].attributes.body
Hello! My name is Julie. I am a third year accounting student at Carleton. I love to travel with my family and friends. I'm looking forward to working with all of you!

# data[].attributes.body
Hi, my name is also Alex. I am a fourth year finance student but I like accounting too. My interests include driving cars, fishing, and delivering furniture. Looking forward to working with everyone.

# data[].attributes.body
Hello! My name is Matthew and I am from the GTA area. At Carleton, I major in statistics. I love to run and play badminton. I am looking forward to working with everyone.

# data[].attributes.body
Hello Everyone,my name is Alex,enrolled in post-bac in accounting and love being with my family.looking forward working with all of you...

# data[].attributes.body
Hi everyone, my name is Jacob and I am going into my third year at Carleton. I worked at QNX Software over the summer and enjoy cycling and swimming. I look forward to working with all of you!