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False. Activity-based costing is used to allocate indirect cost into direct costs.Regardng direct cost, traditional costing is as appropriate as activity-based costing.
Activity-based costing.
Activity based Costing, Target costing, Just in Time,Total Quality Management,
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
Traditional costing system allocates the idle capacity cost to completed units while activity based costing only allocates the cost of capacity which is utilized while remaining capacity is expensed to income statement as period cost.
False. Activity-based costing is used to allocate indirect cost into direct costs.Regardng direct cost, traditional costing is as appropriate as activity-based costing.
Activity-based costing.
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.
Activity based Costing, Target costing, Just in Time,Total Quality Management,
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
Activity-based costing tries to take the nonuniformity of resource consumption across products into account in the assignment of costs.
Traditional costing system allocates the idle capacity cost to completed units while activity based costing only allocates the cost of capacity which is utilized while remaining capacity is expensed to income statement as period cost.
Activity based costing allocate the overhead expenses based on activities performed and that's why it is an accurate way to allocate overhead expenses while in absorption costing, overheads are allocated based on some ratios or predetermined rate which is not accurate method of allocation of cost.
a factor that determines the cost of an activity. Cost drivers are analyzed as part of activity based costing and can be used in continuous improvement programs. They are usually assessed together as multiple drivers rather than singly. There are two main types of cost driver: the first is a resource driver, which refers to the contribution of the quantity of resources used to the cost of an activity; the second is an activity driver, which refers to the costs incurred by the activities required to complete a particular task or project.
Identifying the activities and identification of cost drivers
Costs are assigned to activities from resource cost pools.
Identifying the activities and identification of cost drivers