ABCs of batch processing: assign the batch cost to the product that required the batch activity? Maybe not!(activity-based costing)

Journal of Accountancy, August, 2007 by Shoemaker, Bill; Vercio, Alan

When it comes to adding or reducing products or services, accurate cost information is critical. Activity-based costing (ABC) provides solutions to measuring costs that traditional methods do not address. Rather than simply dividing costs among the number of widgets manufactured or services provided, ABC acknowledges that not all costs are driven by output volume. As a result, ABC identifies activities related to batches, products, customers, administration and related costs that are not driven by volume (or unit production).

As a general rule, if non-volume related activities and their related costs are not isolated, high-volume customers and high-volume products will subsidize low-volume customers and low-volume products. Minimizing this type of inaccuracy is...

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