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

Analysis of credit file, Analysis of Credit File: Credit file is a compila...

Analysis of Credit File: Credit file is a compilation of each the relevant credit information of the customer. All the credit information collected throughout the credit informati

Explain the methods of pricing, Explain the Methods of pricing The fol...

Explain the Methods of pricing The following methods are used for intra company transfer pricing: 1) Total cost method: transfer is made at absorption cost which is the t

Types of simulation-operational gaining-monte carlo method, Types of Simula...

Types of Simulation 1) Operational Gaining Method: This refers to those situations involving conflict of interest among players or decision makers within the framework o

What are the objectives of intra company transfer pricing, What are the Obj...

What are the Objectives of Intra company transfer pricing The objectives of Intra company transfer pricing are: 1) Evolution of performance and efficiency of each division.

State budgetary control, State Budgetary Control A budget is a quantita...

State Budgetary Control A budget is a quantitative expression of a plan of action relating to the forthcoming budget period. It represents a written operational plan of managem

Directing, Directing There are number of good plans which are never rea...

Directing There are number of good plans which are never realized. To realize a plan it requires the initiation and   direction of the number of actions. Often, thes

Explain the quick ratio - liquidity ratios, Quick ratio Meaning: this...

Quick ratio Meaning: this ratio establishes a relationship among quick assets and current liabilities Objective: the objective of commuting this ratio is to calculate th

Arrival rates-service rates-traffic intensity, Arrival Rates, Service Rates...

Arrival Rates, Service Rates, and Traffic Intensity The (average) arrival rate is the rate of arrival of customers at a queue, and is often denoted by x. If 10 customers arr

Representation of simplex method, Representation of Simplex method We s...

Representation of Simplex method We shall use the example previously stated for the graphical solution. The standard form of the model is given by: Maximize :  Z = 3X E + 2

Ranking of decision packages , Ranking of Decision Packages The rankin...

Ranking of Decision Packages The ranking procedure is employed to establish a rank priority of decision packages in the organization. Throughout the ranking procedure managers

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