Determine the stages in activity based costing, Managerial Accounting

Assignment Help:

Stages in activity based costing

The different stages in activity based costing are listed below and are shown in figure below.

1) Identification of the activities that may take place in an organization: usually the numbers of cost centers that a traditional overhead system uses are quite small say upto fifteen. In ABC the number of activities will be much more say 200 the exact number will depend on how the management subdivides the organization s activities it is possible to break the organization down into many very small activities. But if ABC is acceptable as practical system it is necessary to use larger grouping so that say 40 activities may be used in practice. The additional number of activities over cost centers means that ABC should be more accurate than traditional method regardless of anything else.

2) Assigning costs to cost pool for each activity : both support and primary activities that caused them. This creates cost pools or cost buckets his will be using resource cost drivers that reflect causality.

3) Support activities are then spread across the primary activities : on some suitable base, which reflects the use of the support activity. This is based on the factor that drives the consumption of the activity. The based is the cost driver that is the measures of how support activity are used.

4) Determine the cost driver for each activity : that will be used to relate the overheads collected in the cost pools to the cost objects this is based on the factor that drives the consumption of the activity. The question to ask is - what causes the activity to incur costs? In production scheduling for example the driver will maybe be the number of batches ordered.

5) Assigning the cost of activities to products according to product demand for activities : this requires to calculate cost driver rate for each activity just as an overheats absorption rate would be calculated in the traditional system.

The activity driver rate can be used to cost products as in traditional absorption costing but it can also cost other cost objects like customers\ customer segments and distribution channels. The possibility of costing objects other than products is part of the advantage of ABC. The activity cost driver rates will be multiplied by the dissimilar amounts of each activity that each product / other cost object consumes.

 


Related Discussions:- Determine the stages in activity based costing

Working capital management, literature review of effects of working capital...

literature review of effects of working capital on financial performance?

Decision making environment-risk seeking-neutral-averse, Risk seeking:  ...

Risk seeking:  A risk seeker is a decision maker who is concerned in the best likely outcome no matter how small the chance that they might take place i.e. he takes high risks

Financial planning programs, Financial planning programs Such programs ...

Financial planning programs Such programs differ in complexity. Some simple programs can include only those variables discussed while other more complicated ones can include an

Decision making, Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a ...

Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a contract with a potential customer in Jamaica. Before the negotiations started the Jamaican company agreed to pay $10,000

Debentures, 500 000 debentures are in a company at a coupon value of R50 ea...

500 000 debentures are in a company at a coupon value of R50 each in issue. During each financial year, interest on these debentures is paid in arrears and in equal quarterly inst

Budget and Budgetary Control, I am to write thesis on Budget and Budgetary ...

I am to write thesis on Budget and Budgetary Contro. Can you please help me with contents and notes?

Cost estimation, engineering method of cost estimation

engineering method of cost estimation

Standard costing in modern environment, Standard costing in modern environm...

Standard costing in modern environment Standard costing has traditionally been associated with labor-intensive operations, but it can be applied to capital-intensive production

Management accounting influence, Management Accounting Influence (A) ...

Management Accounting Influence (A) Transfer pricing and performance measurement relies upon the judgment of the management accountant to make a suitable choice of approach

Explain the ratio analysis according to kosher, Explain the Ratio analysis ...

Explain the Ratio analysis according to kosher A ratio is the relation of the amount a to another b expressed as the ratio of a to b; a: b (a is to b) or a as simple fraction i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd