1. PRODUCT COSTING LO
• DISCUSS WHY UNIT COSTS ARE IMPORTANT
• TO VALUE INVENTORY
• INPUT TO DECISIONS ON PRICING, MAKE OR
BUY, ACCEPT OR REJCET SPECIAL ORDERS
• ACCURATE COST DATA ESSENTIAL

2. COSTING APPROACHES
• CAN DESCRIBE BOTH TRADITIONAL AND ABC
• CAN EXPLAIN DIFFERENCES
• CAN TRACE DIRECT COSTS BUT ASSIGN
INDIRECT COSTS USING SOME BASIS OR COST
DRIVERS
• ECPLAIN WHY TRADITIONAL CAN DISTORT
COSTS:OVERHEAD COSTS HAVE GONE UP

3. TRADITIONAL CANNOT ASSIGN
• OVERHEAD PROPERLY
• CONSUMED BY PRODUCTS IN DIFFERENT
PROPORTIONS THAN UNIT BASED OVERHEAD
ACTIVITIES LIKE PER DIRECT LABOUR
HOUR/MACHINE HOUR
• SOME OVERHEADS ARE NON-UNIT BASED

4. CAN EXPLAIN ABC
• NON-UNIT LEVEL ACTIVITY:SET UP
• INCURRED EACH TIME A BATCH OF PRODUCTS
IS PRODUCED
• MORE PRODUCTION, MORE SET UPS
• NUMBER OF SET UPS, NOT NUMBER OF UNITS
OF PRODUCTS IS A MUCH BETTER MEASURE
OF OF THE CONSUMPTION OF THE SET UP
ACTIVITY

5. MAIN PROBLEM
• IS DIRECT LABOUR HOURS DRIVING THE
OVERHEAD COSTS?
• WHAT ACTIVITIES DRIVE THE OVERHEAD
COSTS?
• SPLIT OVERHEAD COSTS INTO ACTIVITIES
• CALCULATE A RATE FOR EACH ACTIVITY
• USE THIS RATE TO ASSIGN TO PRODUCTS

6. ADVANTAGE
• MANY PRODUCTS: ABC IS SAID TO DELIVER
MORE ACCURATE COST DATA