What is meant By Activity Based Costing? Discuss About its Components

We can define Activity Based Costing as a costing system that focuses on the activities that is performed to produce products. In this kind of costing the costs are initially traced to the activities and then to products. According to the assumptions of the costing system the activities are found to be responsible for the incurrence of the costs and products that creates the demand for the activities. Therefore the costs are charged to products that are biased on the individual use of the products of every activity. With the help of the content of Activity based accounting assignment help the student can know much better about Activity Based Costing (ABC).

Comparison between Activity Based Costing and Traditional Product Costing

In case of traditional product costing the cost are initially traced to an organizational unit such as department or plant but not to activities. And then it is traced to products. Whereas, ABC is based on a single fundamental difference with traditional cost system. Under the ABC kind of costing the activity and the product or service cost are determined on the basis of the primary principal that activities consumed the cost of the resources. In turn, the activities are consumed by the cost objects of products and services. The Activity Based Accounting assignment writing guidance delivered by the writer of BookMyEssay contains valuable information on Activity Based Accounting.

Stages and Flow of Cost in ABC

In Activity Based Costing there are two primary stages. The first stage is tracing costs to the activities and the second stage is tracing activities to the products. These two stages have different stages which are as explain below: Step 1: The main activities in the organization are identified. This can be explained with the help of examples like purchasing, materials handling, dispatch, receipt, assembly, machining, and so on. Step 2: The factors are identified that determines the costs of an activity. Therefore these factors are known as the cost drivers. This can be explained with the help of the examples like number of orders delivered, number of purchase orders, number of set-ups and so on. Step 3: The costs of each of the activity is collected and these are known as the cost pools which are directly equivalent to the conventional cost centres.

Step 4: Based on the usage of the activity, the support overheads are charged to products and it is expressed in terms of the chosen cost driver. This can be explained with the help of an example, if the total purchasing costs were Rs. 2,00,000 and there were 1,000 purchase orders, that is chosen to be the cost driver, then per purchase order, the products would be charged Rs 200. Therefore a batch generating 3 purchase orders would be charged as 3 x Rs 200= Rs 600 for the purchasing overheads. While writing difficult assignments, students often wonder that “If I could ask for help from the online writers to do my homework?”

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