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Activity-based costing (ABC) is a cost accounting method that assigns overhead costs to products based on the activities they require. Cost drivers are factors that directly influence the cost of an activity and are used to allocate costs in ABC. By identifying cost drivers, companies can more accurately allocate costs and understand the true cost of their products or services.
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How is cost determined?
Cost is determined by calculating all expenses related to producing a product or providing a service, including materials, labor, and overhead costs. These costs are then used to establish the selling price of the product or service to ensure a profit margin. Various costing methods, such as job order costing or activity-based costing, can be used to determine costs accurately.
How can activity based systems help managers in a global marketplace?
Activity-based systems can help managers in a global marketplace by providing accurate cost information for decision-making. By tracking costs at a detailed activity level, managers can better understand the cost drivers of their products/services across different markets. This enables them to identify areas for cost reduction or optimization, leading to improved competitiveness and profitability in the global market.
How much does oak wood cost?
The cost of oak wood can vary based on the type of oak, quality, and supplier. On average, oak wood can range from $3 to $10 per board foot, with specialty and premium varieties costing more. Prices may also fluctuate based on regional availability and market demand.
What is relevant rang of activity level in an organization in accounting?
The relevant range of activity level in accounting refers to the range of operations over which a company's cost behavior patterns remain consistent. It helps in making accurate cost predictions and budgeting decisions based on historical data. Understanding the relevant range is crucial for management to optimize resources effectively.
What are examples of structural cost drivers?
Examples of structural cost drivers include the size and complexity of an organization, the level of automation and technology used in operations, the geographical spread of operations, the nature of the industry in which the organization operates, and the scale of production or sales volume.
What are the two stages of allocation in activity-based costing?
Identifying the activities and identification of cost drivers
What are the two stages of allocation in activity based costing?
Identifying the activities and identification of cost drivers
Activity-based costing is a means of more accurately accounting for direct labor cost?
False. Activity-based costing is used to allocate indirect cost into direct costs.Regardng direct cost, traditional costing is as appropriate as activity-based costing.
Cost allocation bases in activity-based costing should be a. cost drivers b. value-added activities c. activity centers d. processes?
C
How would you describe activity based costing?
Activity-based costing is a form of cost refinement, designed to obtain greater accuracy than traditional allocations in cost assignments for product costing and decision-making purposes.
What are the tools and techniques of cost management?
Activity based Costing, Target costing, Just in Time,Total Quality Management,
What are the differences between activity-based absorption costing system and traditional absorption costing system?
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
How is activity based costing better than traditional cost assignment systems?
Activity-based costing tries to take the nonuniformity of resource consumption across products into account in the assignment of costs.
How do activity-based costing and the traditional cost system treat idle capacity costs differently?
Traditional costing system allocates the idle capacity cost to completed units while activity based costing only allocates the cost of capacity which is utilized while remaining capacity is expensed to income statement as period cost.
Why activity based costing?
Activity based costing allocate the overhead expenses based on activities performed and that's why it is an accurate way to allocate overhead expenses while in absorption costing, overheads are allocated based on some ratios or predetermined rate which is not accurate method of allocation of cost.
What is the first step in activity-based costing?
Costs are assigned to activities from resource cost pools.
What is the first step in activity based costing?
Costs are assigned to activities from resource cost pools.
