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

Cost behaviour, How costs behave as the level of activity/volume changes.  ...

How costs behave as the level of activity/volume changes.  Why an understanding of cost behaviour is important ? Types Variable e.g. petrol, direct materials Fixed e.g.

Capital budgeting – planning investments, The management of Popular Stores ...

The management of Popular Stores Sdn. Bhd. are in the process of exploring the company’s investment opportunities.

The case of a fixed discount-discount structures, The case of a fixed disco...

The case of a fixed discount When evaluating inventory decisions when a fixed discount rate exists, the appropriate procedure is to compare the total costs of the EOQ with the

What is the flexible budgets, What is the Flexible budgets  A flexible ...

What is the Flexible budgets  A flexible budget consists of a series of budgets for different level of activity. It therefore varies with the level of activity attained. A flex

Calculate the break-even point and safety margin, The Braggs & Struttin' Co...

The Braggs & Struttin' Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of

Letter of credit, In the documentary bills the seller faces a lot of risk a...

In the documentary bills the seller faces a lot of risk as the risk of non-acceptance or non-payment of goods. This poses a main risk for the seller. These additional securities in

Consulting project, CONSULTING PROJECT Pricing and Production Decision...

CONSULTING PROJECT Pricing and Production Decisions at PoolOut Ltd  PoolOut Ltd manufactures and sells a single product called the "RainIn", which is a patent-protected au

Ratio Analysis., X ltd. has a current ratio of 4.5:1 and acid test ratio of...

X ltd. has a current ratio of 4.5:1 and acid test ratio of 3:1. If its inventory is Rs. 24000, find out its current liabilities.

Advanced acc, Pike Corporation paid $100,000 for a 10% interest in Salmon C...

Pike Corporation paid $100,000 for a 10% interest in Salmon Corp. on January 1, 2010, when Salmon''s stockholders'' equity consisted of $800,000 of $10 par value common stock and

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