results in improved costing of services provided

has the same objective as in manufacturing

all of these

uses cost pools to assign overhead

the labeling of activities as value-added

that a larger proportion of overhead costs are company-wide costs

identifying activities, activity cost pools, and cost drivers

attempting to reduce or eliminate nonvalue-added activities

more cost pools

better management decisions

enhanced control over overhead costs

more accurate product costing

Production managers use data provided by the existing system

Overhead costs constitute a significant portion of total costs

Product lines similar in volume and manufacturing complexity

The manufacturing process has been stable

is usually responsible for more overhead costs per unit

usually requires less special handling

requires use of direct labour hours as the primary cost driver to ensure proper allocation of overhead

requires relatively fewer machine setups

Machine setups

Purchase orders

Inspections

Machine hours

$180,000

$150,000

$120,000

$0

assigning manufacturing overhead costs for each activity cost pool to products

identifying the activity-cost pools

computing the activity-based overhead rate

analyzing the activities performed to manufacture a product

assign manufacturing overhead costs for each activity cost pool to products

compute the activity-based overhead rate per cost driver

identify and classify the major activities involved in the manufacture of specific products.

identify the cost driver that has a strong correlation to the activity cost pool

Overhead costs à products

Overhead costs à machine hours à products

Overhead costs à direct labour cost or hours à products

Overhead costs à activity cost pools à cost drivers à products