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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.

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Thad Mitchell

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2y ago

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Describe the key features of activity-based costing?

A key feature of activity-based costing is realizing that the value of a product changes as it is being produced. This would mean that raw materials should cost less than the finished product. For example, a dress starts out as just a piece of material, but after it is sewn together, it has more worth than when it started.


What factors should be considered in evaluating Activity Based Costing software packages?

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What type of companies would benefit using the activity based costing?

Following type of companies1) Those who want to perform better2) Those who want to be competitiveWhat specific types of companies would be better served with variable costing as opposed to absorption costing? Why?


Can Activity based Costing be used for an IT Company like Infosys Wipro?

In a simple answer, yes. Activity based costing can be a valuable tool for any environment that either makes something (manufacturing) or delivers something (service - such as IT outsourcing). One option would be to use driver data mapping services to specific customers to calculate "actual" cost estimates by service by customer in addition to tradional "activity" analysis.


How would you describe an activity-based budget?

Activity-based budgeting is a technique that focuses on costs of activities or cost drivers necessary for production and sales. Such an approach facilitates continuous improvement.


How would you describe an activity based budget?

Activity-based budgeting is a technique that focuses on costs of activities or cost drivers necessary for production and sales. Such an approach facilitates continuous improvement.


How does activity based costing relate to the objectives of a company?

Activity Based Costing does the calculation of costs, that can be segregated as Product, Service, Business Sustaining and Available to Use Costs. Mere calculation of those costs practically would not help anybody. Once has to go beyond those calculations and anlyse those costs. After analyzing (which can be performed in various ways) find out the action poins and work on them. Activity Based Costing is a concepts that can be used to support for various objective of the company. These objectives can be grouped in three parts a) Product and Customer Profitability b) Process and cost improvements c) Resource planning.


What type of organization is most likely to benefit from using activity-based costing for product costing?

The companies benefiting the most from ABC would be companies with a significant amount of overhead pertaining to a diversity of activities in providing goods (or services) to customers whose demands also vary.


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


How would you describe a cost object?

A cost object is why activities are performed; it is a unit of product or service, an operating segment of the organization, or even another activity for which management desires an assignment of costs for unit costing or decision-making purposes.


Advantages and disadvantages of activity-based costing system?

ABC....why? The problem with Traditional costing is that it can easily over-allocate overhead to cost objectives. Traditional costing is production volume driven so its would be easy but yet inaccurate to assign a Skittles production with more overhead than say a the division within the same company that makes custom pies. Activity based costing accounts for the multiple costs that go into making a product or service thus making allocation of overhead more efficient and allowing managers to make better business decisions. Derek Coleman


When not to use Activity Based Costing?

I would like to answer this questions humorously. Pl do not use Activity Based Costing if; 1) You do not want to understand the profitability of the products, customers, channels. the true costs and cost drivers for the profitability. 2) You do not want to set targets based on the profitability. 3) You not want to optimize the profits by optimizing customer segments 4) You do not want to optimize the processes and their costs 5) You not want to use a flexible reporting system that helps to take operating, tactical and strategic business decisions. More on this on the link below.