Activity Based Costing
ABC is where cost is attributed to cost unit based on the cost unit usage of activity
Implication
Decision making
Product change
Discontinuation
Promotion
Pricing
Why ABC
high volume product will tend to bear higher overheads in trad.
many cost are driven by non volume related act.complexity/range
overhead constitute large part of cost than dl dm
Wider range of products
Disadvantages
a cost sriver may/may not explain all cost in c/pool
some item may use other means of appn like rent,depn etc
problematic implementn
cost benefits of accuracy
only measurable cost drives can be used
The method
Step 4: CHARGE to cost units based on their usage of the activity
Step3: For each cost driver cost pools
Step 2: Cost drivers ( factors which determine the cost of activity)
Step 1Major activity
example:purchasing acti, prodn etc
Advantages
more ohd cost beyond factory floor
better costing of pdt with complex prodn process
better u/std what drives ohd costs
Subtopic
Definition: ?
"activities go up cost go up''
products demand activites
activities drives cost
