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The important characteristics of ABC are noted below:
v 1)Simple traditional distinction made between fixed cost and variable cost is not enough guide to provide quality information to design a cost system.
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2)The more appropriate distinction between cost behaviour patterns are volume(scale) related, diversity(scope) related, events(decisions) related and time related.
v 3)Cost drivers need to be identified. A cost driver is a structural determinant of cost related activity. The logic behind is that cost drivers dictate the cost behaviour pattern. In tracing overhead cost to product, a cost behaviour pattern must be understood so that appropriate cost driver could be identified.
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What does a well designed activity based costing system start with?
An Activity Based costing always starts with defining your objective. why do you want to implement this system? This definition is very important. Then the scope of the project and then the phases. The typical onjectives of the ABC system would fall under one the following three; 1) Understand Product, customer profitability 2) Understand the process costs and the cost drivers for them 3) Planning resource
What are the three overhead absorption rates?
As far as I know there is only an overhead absorption rate and a full absorption rate. The alternative being marginal costing. There are 3 methods of absorption costing. These being Activity, Time and Efficiency but I'm not sure what you are asking exactly.
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What does a well designed activity based costing system start with?
An Activity Based costing always starts with defining your objective. why do you want to implement this system? This definition is very important. Then the scope of the project and then the phases. The typical onjectives of the ABC system would fall under one the following three; 1) Understand Product, customer profitability 2) Understand the process costs and the cost drivers for them 3) Planning resource
What are the three overhead absorption rates?
As far as I know there is only an overhead absorption rate and a full absorption rate. The alternative being marginal costing. There are 3 methods of absorption costing. These being Activity, Time and Efficiency but I'm not sure what you are asking exactly.
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