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Instructional Case—Activity-based Costing Incorporating both Activity and Product Costing

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In recent years, accounting educators have responded to pressure from various stakeholders to improve the skills of accounting graduates. The skills demanded by these constituencies are consistent and include analytical thinking, problem-solving, and communication skills. The purpose of this paper is to describe our approach to addressing these issues in our undergraduate cost/managerial accounting classes by supplementing textbooks with an activity-based costing (ABC) case. The case is unstructured and students are required to prepare both first and second stage allocations, interpret the information, and suggest how management can use the information. An unstructured problem is an ideal setting for activity-based costing because of the difficulties in its implementation. In particular, this case illustrates one of the difficulties encountered in implementing ABC, which occurs when companies collect costs in the general ledger in the traditional functional manner instead of by major production activity.

Keywords: Activity-based cost; instructional case; management accounting

Document Type: Research Article


Affiliations: 1: Florida Atlantic University, USA 2: Wright State University, USA 3: University of Missouri-Kansas City, USA

Publication date: December 1, 2008

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