Lec 10: ABC flash cards

Question	Answer
Why did traditional cost systems work?	Less complex, assumed overhead costs were driven by volume
What are the three design criteria of ABC?	1. designed around organizational activities 2. allocates costs based on causality 3. larger variety of cost drivers
What are the two categories of activities?	1. Operational - activities that transform input into output 2. Support - activities that serve operational activities
What is the overhead cost hierarchy?	1. Facility-sustaining 2. Product-sustaining 3. Batch activities 4. Unit-level activities
What is the five-step process for the ABC method?	1. Identify all activities that consume resources. Assign costs to activities. 2. Identify cost drivers (causal) 3. Classify by "cost hierarchy" level 4. Compute cost driver rate 5. Assign costs to products = cost driver rate x number of cost driver units per product
What are advantages of ABC?	1. better product cost info 2. better relevant cost using cost hierarchy 3. better info on costs and drivers of activities 4. better info to identify opportunities
Customer profitability analysis	process in ABC that assesses profitability of customer 1. Customer cost analysis (identifies activities and cost drivers) 2. Customer unit level costs (resources consumed per unit) 3. Customer batch-level (order processing costs, invoice costs) 4. Customer-sustaining (collection costs)
Customer equity =	sum of all CLVs (NPV of future profits) for all customers

Resource summary

	Created by serenatsay almost 10 years ago