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tarasen57 tarasen57
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Discuss the three categories of overhead costs in an activity-based costing system.
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Accounting Information Systems

Accounting Information Systems


Edition: 14th
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Mtoney9Mtoney9
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The three separate categories of overhead are: (1) Batch-related overhead. Examples include setup costs, inspections, and materials handling. Activity-based cost systems accumulate these costs for a batch and then allocate them to the units produced in that batch. Thus, products produced in large quantities have lower batch-related overhead costs per unit than products produced in small quantities. (2) Product-related overhead. These costs are related to the diversity of the company's product line. Examples include research and development, expediting, shipping and receiving, environmental regulations, and purchasing. Activity-based cost systems try to link these costs to specific products when possible. For example, if a company produces three product lines, one of which generates hazardous waste, an activity-based cost system would charge only that one set of products for all the costs of complying with environmental regulations. Other costs, such as purchasing raw materials, might be allocated across products based on the relative number of purchase orders required to make each product. (3) Companywide overhead. This category includes such costs as rent or property taxes. These costs apply to all products. Thus, activity-based cost systems typically allocate them using departmental or plant rates.
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tarasen57 Author
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4 years ago
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4 years ago
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