Module 12 - Activity Based Costing Flashcards Preview

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Flashcards in Module 12 - Activity Based Costing Deck (5)
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1
Q

Major principles of ABC

A
  1. activities cause costs
  2. producing products creates demands for the activities
  3. costs are assigned based on products consumption of the activities
2
Q

outline of ABC system

A
  1. identify major activities
  2. identify cost drivers
  3. calculate total activity levels
  4. work out cost per cost driver
  5. charge costs to products based on usage of activity
3
Q

Advantages of ABC

A
  • meaningful production costs
  • more accurate info
  • more info on product or customer profitability
  • results in better pricing decisions
  • can look at variances
  • overheads are charged to products on more equitable basis
4
Q

Disadvantages of ABC

A
  • need to understand cost behaviour
  • cost of exercise may outweigh benefits
  • changing technique doesn’t alter total costs
  • some overheads cannot be traced to products
5
Q

Favourable conditions for ABC

A
  • when fixed production overheads are high compared to direct labour etc
  • when there is a wide diversity of product range
  • where there are considerable differences in use of resources by products
  • when consumption of resources is not driven by volume