Broad Averaging
This costing approach applies the same overhead rate to all products, even when they consume different amounts of resources.
What is a single, plantwide overhead rate?
This guideline focuses on identifying as many costs as possible that can be traced directly to a product.
What is direct-cost tracing?
In ABC, costs are first assigned to these before being allocated to products.
What are activities?
Examples of these types of cost include: Direct Materials, Direct Labor, packaging for a product, etc.
What are unit-level costs?
This problem occurs when a product that uses few resources is assigned too much cost under broad averaging.
What is overcosting?
This refinement step increases accuracy by grouping indirect costs that have a similar cause-and-effect relationship.
What are homogeneous indirect-cost pools?
This term describes a group of indirect costs that are related to the same activity. Ex: setup costs, inspection costs.
What is a cost pool?
Examples of these types of costs include: Setting up equipment, Processing Purchase Orders, and Production orders
What are batch-level costs?
This economic distortion caused by broad averaging makes some products appear more profitable and others less profitable than they really are.
What is product-cost cross-subsidization?
In a refined costing system, this factor is used to assign costs from an indirect-cost pool to products.
What is a cost driver?
Compared to broad averaging, ABC reduces this specific costing problem.
What is overcosting and undercosting?
This type of cost exists even when nothing is produced.
What are facility-level costs?