COST ACCOUNTING
ACTIVITY BASED MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Uses a plant-wide overhead rate to assign overhead
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Is not expensive to implement
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Typically applies overhead costs using direct labor-hours
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Uses multiple activity rates
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Detailed explanation-1: -Activity-based costing provides a more accurate method of product/service costing, leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them.
Detailed explanation-2: -In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by: the direct labor-hours required by the product.
Detailed explanation-3: -Which of the following is true about activity-based costing? Explanation: ABC assumes that the resource-consuming activities that generate costs are activities and not outputs. ABC is appropriate for all types of cost accumulation systems, including both job order and process costing.
Detailed explanation-4: -The formula for activity-based costing is the cost pool total divided by cost driver, which yields the cost driver rate. The cost driver rate is used in activity-based costing to calculate the amount of overhead and indirect costs related to a particular activity.