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

Standard error of estimate , Standard error of estimate (Se) The coeffi...

Standard error of estimate (Se) The coefficient of determination r 2 gives us an indication of the reliability of the estimate of total cost based on the regression equation b

Objective function, Objective Function Although the standard LP model c...

Objective Function Although the standard LP model can be either the maximization or the minimization type, it is sometimes useful to convert one form to the other. The maximiz

Calculate the standard cost and standard selling of product, Question 1: ...

Question 1: A company's budgeted production of Product Zebra for the month ending 30 November 2004 was 10,000 units. The fixed overheads were budgeted at Rs3,200,000. The st

Working capital management, stanley shoe company established a line credit ...

stanley shoe company established a line credit with a local bank. the maximum amount that can be borrowed under the terms of the agreement is $100000 at an annual rate of 12%. a co

Determine the profitability ratios in relation to investment, Determine the...

Determine the Profitability ratios in relation to investment a) Return on capital employed/ return on investment b) Return on equity or return on equity share holders' funds

What value can management derive from a balance scorecard, What value can m...

What value can management derive from a Balance Scorecard? How does the management accountant contribute?

Help, Sean Corp. issued a $60,000, 10 year bond at the face rate of 8% annu...

Sean Corp. issued a $60,000, 10 year bond at the face rate of 8% annually on 1/1/X0. The market rate was 10%. How much cash will the bond investors receive at the end of the first

Determine a firms earnings per share, You have been asked to determine the ...

You have been asked to determine the EPS indifference EBIT* level for your firm using the following information. Under the high-leverage alternative (a D/E ratio of 1.50), the firm

HW, Raner, Harris, & Chan is a consulting firm that specializes in informat...

Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. T

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