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Activity-based costing is a means of more accurately accounting for direct labor 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.
How can activity-based costing be used in non-manufacturing industries?
Yes, you can.
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.
Which costing method is used for external reporting purpose?
absorption costing
What is the difference between process costing and operation costing?
Process costing and operational costing systems are used in accounting, usually in relation to the manufacturing sector. Both refer to the costs of production, but they differ in terms of methodology and application. Process costing is used in industries where the products are all basically the same, such as bricks or cement. Operational costing, on the other hand, is used in industries where the products are similar but may have some variation in terms parts or the quality of materials.
Activity-based costing is a means of more accurately accounting for direct labor 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.
How can activity-based costing be used in non-manufacturing industries?
Yes, you can.
True or false direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system?
False
Which method of costing is used in printing press?
process costing
How is cost determined?
Cost is determined by calculating all expenses related to producing a product or providing a service, including materials, labor, and overhead costs. These costs are then used to establish the selling price of the product or service to ensure a profit margin. Various costing methods, such as job order costing or activity-based costing, can be used to determine costs accurately.
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.
Which costing method is used for external reporting purpose?
absorption costing
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 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 is the difference between process costing and operation costing?
Process costing and operational costing systems are used in accounting, usually in relation to the manufacturing sector. Both refer to the costs of production, but they differ in terms of methodology and application. Process costing is used in industries where the products are all basically the same, such as bricks or cement. Operational costing, on the other hand, is used in industries where the products are similar but may have some variation in terms parts or the quality of materials.
What is an instrument to record the number of a steps taken in walking?
A pedometer is an instrument used to record the number of steps taken while walking. It tracks a person's physical activity by counting the number of steps based on the movement of the body.
Where are cost accounting systems used?
Cost accounting systems such as activity-based costing (ABC) systems are used primarily in manufacturing environments, but increasingly are being applied to service companies, such as banks, real estate firms, and insurance companies.
