COST ACCOUNTING
ACTIVITY BASED MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Identify activity centres
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Assign costs to activity centres
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Identify activities and resource drivers for each activity centre
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Assign activity centre costs to activities using resource drivers
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Detailed explanation-1: -Step 1: Identify the products that are the chosen cost objects. Step 2: Identify the direct costs of the products Step 2: Identify the direct costs of the products. Step 3: Select the activities and cost-allocation bases to use for allocating indirect costs to the products for allocating indirect costs to the products.
Detailed explanation-2: -The four steps in ABC are identifying activities, estimating their amount and allocation base, computing predetermined rate, and allocating overhead costs.
Detailed explanation-3: -The first step in applying activity-based costing is the identification of major production activities. It is the most important step because costs are first assigned to activities and then their respective drivers are identified for determination of the allocation rate.
Detailed explanation-4: -Examples of cost drivers include machine setups, maintenance requests, consumed power, purchase orders, quality inspections, or production orders.