Page 252 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Sukhpreet Kaur, Lovely Professional University Unit 14: Introduction to Recent Development in Cost Management

Unit 14: Introduction to Recent Development in Notes
Cost Management

CONTENTS
Objectives
Introduction
14.1 Activity based Costing
14.1.1 Important Factors of Selecting the Cost Drivers
14.1.2 Objectives of ABC
14.1.3 Process of Calculating ABC
14.2 Target Costing
14.2.1 The Basic Process
14.2.2 When are Costs Set?
14.2.3 Tools and Techniques
14.2.4 First, Price
14.2.5 Then, Cost
14.2.6 Finding Paths to the Targets
14.2.7 Maintaining Cost
14.3 Master Budget
14.4 Summary

14.5 Keywords
14.6 Review Questions
14.7 Further Readings

Objectives

After studying this unit, you will be able to:

Define activity based costing
Describe target costing
Discuss the preparation of master budget

Introduction

Activity based Costing (ABC) is an accounting technique that allows an organization to determine
the actual cost associated with each product and service produced by the organization without
regard to the organizational structure. It is developed to provide more-accurate ways of assigning
the costs of indirect and support resources to activities, bushiness processes, products, services,
and customers. ABC systems recognize that many organizational resources are required not for
physical production of units of product but to provide a broad array of support activities that
enable a variety of products and services to be produced for a diverse group of customers. The
goal of ABC is not to allocate common costs to products. The goal is to measure and then price
out all the resources used for activities that support the production and delivery of products and
services to customers.

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