In Both Activity-Based and Time-Driven Activity-Based Systems We Calculate Cost-Driver

question 131

Essay

In both activity-based and time-driven activity-based systems we calculate cost-driver rates for support activities (e.g., the cost to ship an item or the cost to process a customer order) and it is asserted that these rates are best determined by dividing budgeted resource costs (for a given cost pool) by the practical capacity of resources supplied.
Required:
1.What is the primary advantage of using practical capacity as the volume level for determining cost allocation rates in an ABC or TDABC system?
2.What is the appropriate accounting treatment for unused capacity costs for a given accounting period?

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Definitions:

Vertical Spread

A strategy in options trading that involves purchasing and selling of two options of the same type and expiration date but different strike prices.

Data Points

Individual values or measurements that are collected through observation and are represented in a data set.

Regression Analysis

A statistical method used for estimating the relationships among variables.

Independent Variable

In an experiment or study, the variable that is manipulated or controlled to test its effect on the dependent variable.