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CIMA Official Terminology describes activity-based costing as an approach to the costing and monitoring of activities, which involves tracing resource consumption and costing final outputs. Resources are assigned to activities and activities to cost objects. The latter use cost drivers to attach activity costs to outputs.
What are Activity Pools and Cost Drivers?
- Purchase Orders
- Machine Set Ups
- Number of Purchase Orders
- Number of Machine Set Ups
- Number of items to package
What would the traditional methods of allocation have been?
- Direct Labour Hours
- Machine Hours
- Floor Area
Using Activity Based Costing can produce very different results to Traditional Methods, click here for an example