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Activity Based Costing:A Tool to Aid Decision Making
Activity Based Costing (ABC)
The objective of activity-based costing is to understand overhead and the profitability of products and customers.
Activity Based Costing (ABC)
How Costs are Treated Under Activity-Based Costing
Plantwide Overhead Rate
Departmental Overhead Rates
Departmental Overhead Rates
Departmental Overhead Rates
Departmental Overhead Rates
Designing an ABC System
Designing an ABC System
Steps for Implementing ABC
Identify and define activities and activity pools.
Where possible, trace costs to activities and cost objects.
Assign costs to activity cost pools.
Calculate activity rates.
Assign costs to cost objects.
Prepare management reports.
Identifying Activity to Include
Identifying Activity to Include
Activity Cost Pool is a “bucket” in which costs are accumulated that relate to a single activity in the ABC system.
The Mechanics of ABC
At Classic Brass, the ultimate cost objects are:
Products,
Customer orders, and
Customers.
One overhead cost - shipping - can be traced directly to customer orders.
The company’s overhead costs are shown on the next slide.