Activity-Based Costing Activities Traditionally, in a job order cost system and process cost system, overhead is allocated to a job or function based on direct labor hours, machine hours, or direct labor dollars.
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C. Activity-based costing can be used only if approved by the Institute of Management Accountants. D. Activity-based costing can only be used by firms involved in manufacturing. Which of the following is a value-added activity for a bank?
C. is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers. What overhead allocation basis is used by many companies with automated manufacturing processes to reduce product cost distortions? When is it appropriate to use direct labor as a basis for assigning overhead costs to products?
Assign overhead costs to products, using the overhead rates determined for each cost pool (cost per driver) 1. ABC leads to more cost pools 2. ABC leads to enhanced control over overhead costs
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Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead.
(Figure)How are costs allocated in an ABC system? Estimated overhead costs are first allocated to activity cost pools. Then, an allocation rate is determined based on the estimated usage of the cost driver for that pool. Then the costs are allocated to each product based on that product's cost driver usage.
Which of the following is true about activity-based costing? Explanation: ABC assumes that the resource-consuming activities that generate costs are activities and not outputs. ABC is appropriate for all types of cost accumulation systems, including both job order and process costing.
Key Takeaways. Activity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services. The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.
To allocate the overhead costs, you first need to calculate the overhead allocation rate. This is done by dividing total overhead by the number of direct labor hours. This means for every hour needed to make a product, you need to allocate $3.33 worth of overhead to that product.
Activity-based costing focuses on identifying the activities required to make products, on forming cost pools for each activity, and on allocating overhead costs to the products based on their use of each activity. ABC systems and traditional systems often result in vastly different product costs.
Answer and Explanation: The correct option is (a). The statement saying "activity-based costing can be applied to products but not to customers " is true.
The correct option is A. ABC cannot be used by service businesses. Activity-based costing is the costing method that is used by a business to...
A basic assumption of activity-based costing (ABC) is that: All manufacturing costs vary directly with units of production. Products or services require the performance of activities, and activities consume resources.
Activity Based Costing – Concept The basic feature of ABC is its focus on activities. It uses activities as the basis for determining the costs of products or services. As quoted by Horngren, Foster and Datar, “ABC is not an alternative costing system to job costing or process costing.
Activity-based costing (ABC) An overhead cost-allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used.
There are two primary stages in ABC— first, tracing costs to activities; second, tracing activities to products....Stages and Flow of Costs in ABC:Identify the main activities in the organisation. ... ADVERTISEMENTS: ... Collect the costs of each activity.More items...