Activity Based Costing

Activity based be ( first rudiment) is a relative peeled expression to allocate terms to specific mathematical operationes and services. This dead body assures that the costs ar accurately distributed to the products or services that generated them. first rudiment illust evaluate costs more accurately, giving commission perspicacity to the cost associated with certain telephone circuit activities. ABC extends the finish-making skills of management by expanding on conventional cost (job order be/process order costing) techniques. However, since alphabet ground plough in the 1980s, numerous corporations ar non using ABC, notwithstanding gained managerial decision making capabilities. Even by the mid-1990s, ABCs use has not spread by dint ofout the accounting system manufacturing and its use is not pellucid (Selto & Jasinski, 1996). The following oblige will discuss the pros and cons of the ABC method. ABC is an extension of traditional product costing techniques. These techniques ar called job order costing and process order costing. A job order costing system arranges costs for all(prenominal) unit as it goes through a production process. A process cost system collects costs in work in progress account. The poetry of units worked are recorded for the accounting period. These systems alone do not accurately illustrate costs incurred. Instead, these two costing techniques generally lump costs into 3 main categories (cost centers). These three categories are direct materials, direct fight and overhead.

Cost drivers are thence assigned to represent the affinity between the cost and the process i! t is allocated to. ABC provides a fail map of the costs of manufacturing products or distributing services. ABC uses a peck of activity centers, which are the alike to the previously mentioned traditional cost centers. Each of these activity centers has its avouch cost driver and driver rate. ABC identifies many various costs to products by adjusting the cost driver and driver rates to specific activity centers. This process... If you exigency to get a ample essay, order it on our website: OrderCustomPaper.com

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