Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 25

Activity-Based Costing of Customers

Refer to the data in Exercise 10-24.

Required

a. How can RSB&T use the information from the activity-based costing analysis to manage its costs?

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b. What does RSB&T need to consider before implementing your suggestions from requirement (a)?

Step 1 of 3

Cost accounting system

This is a system designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Cost allocation

Role of cost allocation comes into play when common cost needs to allocated to two or more products or departments. There different basis used for cost allocation like number units used, labors hours, area used by departments or products etc. Cost allocation base must be the one that best establishes the connection between the overhead incurred and the activity. Cause and effect basis can be effective way to identify cost allocation base.