Activity based costing or abc, Cost Accounting

Activity Based Costing or ABC

Absorption costing shows to be relatively straightforward way of adding overhead costs to units of production utilizing, more often than not, a volume-related absorption basis as like direct machine hours or direct labour hours.  The assumption such all overheads are related primarily to production volume is implied in such system. Absorption costing was developed at a time while most organizations produced merely a narrow range of products and while overhead costs were only an extremely small fraction of net costs, direct material and direct labour costs accounting for the largest proportion of the costs. Therefore errors made in adding overheads to products were not extremely important.

However nowadays, along with the advent of advanced manufacturing technology, overheads are likely to be far more significant and in fact direct labour may account for as little 5 percent of a product's cost.  Furthermore, there has been a raise in the costs of non-volume related support activities, such as setting-up, production scheduling, inspection and data processing that assist the efficient manufacture of a wide range of products.  In general these overheads are not, affected via changes in production volume. They tend to vary in the long term according to the range and complexity of products manufactured quite than the volume of output.

Since traditional absorption costing methods tend to allocate extremely a great proportion of overheads to high-volume products that cause relatively little diversity, and also too small a proportion of overheads to low-volume products that cause greater diversity and hence employ more support services, other methods of costing have been developed.  Activity-based costing or ABC is one such development.

Posted Date: 2/5/2013 7:42:22 AM | Location : United States







Related Discussions:- Activity based costing or abc, Assignment Help, Ask Question on Activity based costing or abc, Get Answer, Expert's Help, Activity based costing or abc Discussions

Write discussion on Activity based costing or abc
Your posts are moderated
Related Questions

The total demand (marginal benefit) curve for visiting Yosemite is as follows: Price = 5000-10*NumberOfTrips -10*TonsOfVisibleTrash. a. Suppose the quantity of trash=100 tons. D

behavioral aspect of standard costing

Effects of differential cost analysis in decision making

Martinez Corporation engaged in the following cash transactions during 2012. Sale of land and building $186,710 Purchase of treasury stock 42,130 Purchase of land 39,130

McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard costs for direct materials and direct labor: Direct Materials (100 lbs. @ $1.00

Required Ledgers in Financial System In the financial Systems the Required ledgers are as: The General Ledger Debtors Ledger Creditors Ledger

ln an attempt to conceal a thefi of funds, Kaito Kid, controller of Shinichi Products, lnc. placed a bomb in the company s record vault. The ensuing explosion left only fragments o

Bottoms Up company produces high quality sports equipment. the companie''s racket division manufactures three tennis rackets- the Standard, Deluxe and the Pro that are widely used

asdfdf afd s