Question

Explain three (3) benefits in using an Activity-based costing system for a manufacturing company.

Answer 1

Activity based costing : It is a costing method under which various activities with in the organisation for producing the goods and services are identified and cost incurred for these activities are assigned to the products as per the consumption levels.

Benefits in activity based costing method for manufacturing concern :

1. This costing method is hepful to reduce cost of production by providing information of the opportunity available for reduce costing.

2. It assists the management is focusing on value adding activities and eliminating non value adding activities.

3. It provides the accurate cost allocation to products which ultimately results in preparation of affective pricing policies.

4. Activity based costing is helpful in determining the profit margin more accurately.

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