Activity Based and Job Based Cost Measurement

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Recommended: Activity based costing chapter 9

There are many methods businesses can use to measure cost. Cost is an essential piece to a business since cost ultimately affects if the business can continue to make a profit. The ultimate goal is for a business to make a profit, so using the correct cost management method is important. This way cost can be calculated as accurate as possible. Two cost measurement methods are activity based and job based costing. This paper will compare and contrast those two methods as well as describe the benefits of each method.

Management Information Systems are divided into two types of systems unit-based and activity-based. Unit based costing systems use traditional product cost definition and use activity drivers to assign price. Unit-level drivers include: units produced, direct hour and dollar labor, machine hours, and the cost of direct materials. Also with unit based systems the overhead is predetermined at the beginning of the year. Activity based costing accounting systems usually offers greater product-costing accuracy, but the price is increased with this method as well. In activity based costing, costs are assigned according to the consumption of products which is why it produces more accurate costing (Hasen & Mowen 2008).

Activity based costing was introduced by Cooper and Kaplan in 1988, and it was designed to allocate overhead cost to final products and services (Elhamma & Yi Fei 2013). The process in this system takes costs to activities and then it takes products to cost (Hasen & Mowen 2008). The activity drivers are classified as non-financial and financial information that relates to the individual activity, and then the cost will be determined by that activity (Hasen & Mowen 2008). This is why activit...

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...le for Conceptual Discussion: Academy of Educational Leadership Journal 14.3. Retrieved from http://search.proquest.com.prx-keiser.lirn.net/docview/747986244/E703C53A989B4518PQ/1?accountid=35796

Hansen, D.; Mowen, M. (2008) Cornerstones of Cost Management 2nd Edition. Mason, OH. South-Western Cengage Learning

Walker, C.; Nesa L’abbe, W. (2000) Systematic approach to Activity base costing of the production planning activity in the book manufacturing industry. International Journal of Operations & Production Management. 20.1:103. Retrieved from http://search.proquest.com.prx-keiser.lirn.net/docview/232361294/58DF1B19FD7349B2PQ/1?accountid=35796

Williams, J. (1985) Job Order Cost Accounting Information Systems. Journal of Small Business Management. Retrieved from http://search.proquest.com.prx-keiser.lirn.net/docview/210710099/132CB645B02C45E7PQ/1?accountid=35796

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