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Costs are assigned to activities from resource cost pools.
Arnulfo Macejkovic
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What is the step down costing?
STEP DOWN is costing:$5.712
How does Activity-Based Costing work?
Activity-based costing (ABC) systems for applying overhead is a two-stage procedure.The first step begins with identifying significant activities in the production of the products (that is grouping similar activities into an activity pool) and assigning a cost to that pool according to the amount of resources consumed by the activity pools.In the second step:A cost driver (an event that results in the incurrence of cost) is identified and quantified ($$$) for eachactivity pool.A pool rate is computed for each activity by dividing the cost of each activity pool by the respective cost driver quantity.The activity cost for each product line is determined by multiplying the pool rate by the cost driver quantity incurred by each product line.Finally, to arrive at the activity cost per unit of product the activity cost for each product line is divided by each product line's production volume.The advantage of this system of applying cost is that it fairly and reflectively distributes cost among products because of the incorporation of multi cost drivers. At each step of the production (activity pools), there is a cost driver that has a rate that reflects the cost of producing with that activity. Thus by the end of the production, the costs assign are reflective of the process and costs.Hope that answers your question :)
What are the steps involved in implementation of Activity Based Costing?
The implementation of Activity Based Costing is not simple, easy & direct as is the case with traditional costing. It requires proper steps or techniques to be followed, which are listed as follows:Step 1: Identification and classification of the activities related to the company's products. Activities in all areas of the value chain (product design, production, marketing, distribution, etc.) must be included. Activity dictionary is prepared, which includes all the activities that a company performs to produce its product or service. The activity dictionary can be prepared in different ways, including interviewing the employees who perform the activities. After the identification of activities, they are classified as unit level, batch level, product level, customer level or facility level.Step 2: Estimation of the cost of activities identified in step 1. Estimate the costs of specific activities that generate costs. These costs are for both human resources, such as employee labor for production and machine maintenance, and physical resources, such as the cost of machinery and building occupancy. Information must include employee data from personnel interviews and financial data from the accounting department. Then the total cost of each activity is calculated.Step 3: Calculation of cost-driver rate for each activity. The activity cost data from step 2 is used to calculate a cost-driver rate that the company can use for assigning activity costs to goods and services. This rate should use a base that has some causal link to the cost. That base is called activity drivers. For example, the costs of running a production machine are likely to be caused by the number of hours it runs. Thus, choosing a rate for this activity based on machine hours is appropriate.Step 4: Assign activity costs to products. The cost-driver rates prepared in step 3 are used to assign activity costs to goods and services. For example, if a particular product uses 1.5 machine hours in production and the rate from step 3 is $50 per hour, the product is assigned $75 based on its machine usage.After the completion of the four steps mentioned above, a company can compute the cost of overheads provided to existing goods and services, which can be used to understand the profitability of each product in a better way. The activity-based costing data could also be used to estimate the cost of future products.
What is step cost?
A step cost is a cost that does not have steady changes. While many costs have changes that result in activity volume, a step cost does not.
What are the advantages of activity based budgeting?
To gain the advantage over the competition is the dream of any business owner. In order to do this, the business must be able to deliver a high quality product or service to the consumer at the lowest cost possible while maintaining a profit for the business.Activity-Based budgeting, allows business owners to evaluate each step involved that is needed to get the product or service to the marketplace.By knowing which steps are unnecessary and by eliminating them, money will be saved and the business will be moving in the right direction.Other benefits of Activity-Based Budgeting include:Allows the managers and business owners view the business as a system from start to finish, rather than individual departments.Produces a "culture of customer focus is reinforced, when employees understand they are in business to produce products and services for customers" Strategic Costing Techniques: Activity-Based Budgeting.Strategic Planning is made easier when everybody knows that the consumer is the most important individual in the business.The money saved from removing unnecessary process steps can be used for future projects and new products.Promotes teamwork within and between departments.Bottleneck-steps that slow down the complete process can be identified and removed.
What is the first step in activity-based costing?
Costs are assigned to activities from resource cost pools.
What is the step down costing?
STEP DOWN is costing:$5.712
How does Activity Based Costing work?
Activity-based costing (ABC) systems for applying overhead is a two-stage procedure.The first step begins with identifying significant activities in the production of the products (that is grouping similar activities into an activity pool) and assigning a cost to that pool according to the amount of resources consumed by the activity pools.In the second step:A cost driver (an event that results in the incurrence of cost) is identified and quantified ($$$) for eachactivity pool.A pool rate is computed for each activity by dividing the cost of each activity pool by the respective cost driver quantity.The activity cost for each product line is determined by multiplying the pool rate by the cost driver quantity incurred by each product line.Finally, to arrive at the activity cost per unit of product the activity cost for each product line is divided by each product line's production volume.The advantage of this system of applying cost is that it fairly and reflectively distributes cost among products because of the incorporation of multi cost drivers. At each step of the production (activity pools), there is a cost driver that has a rate that reflects the cost of producing with that activity. Thus by the end of the production, the costs assign are reflective of the process and costs.Hope that answers your question :)
How does Activity-Based Costing work?
Activity-based costing (ABC) systems for applying overhead is a two-stage procedure.The first step begins with identifying significant activities in the production of the products (that is grouping similar activities into an activity pool) and assigning a cost to that pool according to the amount of resources consumed by the activity pools.In the second step:A cost driver (an event that results in the incurrence of cost) is identified and quantified ($$$) for eachactivity pool.A pool rate is computed for each activity by dividing the cost of each activity pool by the respective cost driver quantity.The activity cost for each product line is determined by multiplying the pool rate by the cost driver quantity incurred by each product line.Finally, to arrive at the activity cost per unit of product the activity cost for each product line is divided by each product line's production volume.The advantage of this system of applying cost is that it fairly and reflectively distributes cost among products because of the incorporation of multi cost drivers. At each step of the production (activity pools), there is a cost driver that has a rate that reflects the cost of producing with that activity. Thus by the end of the production, the costs assign are reflective of the process and costs.Hope that answers your question :)
What are the steps involved in implementation of Activity Based Costing?
The implementation of Activity Based Costing is not simple, easy & direct as is the case with traditional costing. It requires proper steps or techniques to be followed, which are listed as follows:Step 1: Identification and classification of the activities related to the company's products. Activities in all areas of the value chain (product design, production, marketing, distribution, etc.) must be included. Activity dictionary is prepared, which includes all the activities that a company performs to produce its product or service. The activity dictionary can be prepared in different ways, including interviewing the employees who perform the activities. After the identification of activities, they are classified as unit level, batch level, product level, customer level or facility level.Step 2: Estimation of the cost of activities identified in step 1. Estimate the costs of specific activities that generate costs. These costs are for both human resources, such as employee labor for production and machine maintenance, and physical resources, such as the cost of machinery and building occupancy. Information must include employee data from personnel interviews and financial data from the accounting department. Then the total cost of each activity is calculated.Step 3: Calculation of cost-driver rate for each activity. The activity cost data from step 2 is used to calculate a cost-driver rate that the company can use for assigning activity costs to goods and services. This rate should use a base that has some causal link to the cost. That base is called activity drivers. For example, the costs of running a production machine are likely to be caused by the number of hours it runs. Thus, choosing a rate for this activity based on machine hours is appropriate.Step 4: Assign activity costs to products. The cost-driver rates prepared in step 3 are used to assign activity costs to goods and services. For example, if a particular product uses 1.5 machine hours in production and the rate from step 3 is $50 per hour, the product is assigned $75 based on its machine usage.After the completion of the four steps mentioned above, a company can compute the cost of overheads provided to existing goods and services, which can be used to understand the profitability of each product in a better way. The activity-based costing data could also be used to estimate the cost of future products.
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