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

Sales, Ask question #MinimumYears Purchase Costs Running cost discount fact...

Ask question #MinimumYears Purchase Costs Running cost discount factor 8% Running cost Savings PVS 0 -7000 -7000 1 2000 0.926 1852 5556 3704 2 2500 0.857 2142.5 5999 3856.5

Net current assets forecasting method, It is the most practical way of esti...

It is the most practical way of estimating working capital needs. In such method, the finance manager gets ready a working capital forecast. While preparing such forecast, firstly

Accounting, what is a base of managerial accounting

what is a base of managerial accounting

What is ratio analysis, Ratio analysis A ratio is a simple arithmetical...

Ratio analysis A ratio is a simple arithmetical expression of the relationship of one number to another. It may be explained as the indicated quotient of two mathematical ex

Define the balanced score card, Define the Balanced Score Card? 1. Dist...

Define the Balanced Score Card? 1. Distinguish between standard control and budgetary costing. 2. Define the ‘Balanced Score Card? Explain the steps in implementing ‘Balance

Problem 18.4A Process Costing with No Beginning or E, Ask question Toll Hou...

Ask question Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process c

Quantitative or qualitative measures, Review the options and views availabl...

Review the options and views available to answer the following questions: 1. What sort of information is being provided by the dashboard? What visual objects are used?     Wh

Explain functional classification of ratios, Explain Functional classificat...

Explain Functional classification a)  Liquidity ratio: these are the ratio which measures the short term solvency or financial position of a firm. These ratios are calculati

What is the amount of liabilities, Find the value of the following: a.  ...

Find the value of the following: a.    If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital. b.    If the capital of propriet

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