Question

1. Summarize the concepts underlying activity-based costing in two semesters.

Answer 1

Activity based costing is a managerial accounting method that traces overhead costs to activities and then assigns them to objects. In other words, it’s a way to allocate indirect, overhead costs to products or departments that generate these costs in the production process.

ABC costing focuses on identifying activities, or production processes, that are used to process a job. These individual activities are grouped together with similar processes into a cost pool that relates to single activity cost driver. The cost pools are then analyzed and assigned a predetermined overhead rate that will eventually be assigned to individual jobs and products.