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(WIP) ACC 350 Exam 1 Study Material

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Pg. 21 Sarah Allison

Pg. 21 Sarah Allison Takash ACC 350, Spring 2018 Exam 1 Study Material Refer to (#16) “Activity Based Costing” definition. ABC groups indirect costs into homogenous activity-cost pools, each having a cost-allocation base. The cost-allocation base is the driver of costs in the activity-cost pool. It is used to determine indirect cost-rates for individual activities. Those rates are used to compute product costs based on the product’s cost-allocation base consumption per unit. 31. Steps: a. Identify ​cost objects i. cost pools ii. products/services b. Identify ​direct costs​ of the product i. DM ii. DL c. Select the ​activities and/or cost allocation bases​ for indirect costs d. Identify the ​indirect costs​ associated with each cost-allocation base e. Compute the ​rate per unit​ of each cost allocation base f. Compute ​allocation amounts​ to assign to each product g. Compute the ​total assigned costs​ of a product i. Sum: 1. All direct costs traced 2. All indirect costs allocated h. Illustration of steps (below):

Pg. 22 Sarah Allison Takash ACC 350, Spring 2018 Exam 1 Study Material Determining the profitability of products Summary: The profitability of a product is the ​net gain​ a company receives for providing it. This is often represented as a percentage called the “operating profit margin.” ● Operating profit margin ○ Also known as: ■ Operating income margin ■ Operating margin ■ Return on Sales (ROS) ○ Is a percentage