Q7RQ - Horngren'S Financial And Managerial Accounting

Question

How many cost pools are in an activity-based costing system?

Step-by-Step Solution

Answer

To allocate overhead expenses, activity-based costing (ABC) applies numerous cost pools structured by activity.

Step 1: Meaning of Activity-based Costing (ABC)

ABC is partitioning overhead used for merchandise and corporation such as finance and utilities. Activity-based costing makes allocating backhanded costs simpler than the old costing approach.

Step 2: Explaining total cost pools in an activity-based costing system

An activity-based costing framework recognizes exercises and their related costs (and allocation bases) to show how merchandise and administrations employ a company's assets. A company's products and services should speak to how its assets are indeed employed; hence, the number of exercises indicated and their related costs should be satisfactory to reflect this. In any case, they shouldn't be numerous enough to cause undue complexity. More exhaustive information that improves the chance of more shrewd judgments is brought on by complexity. But inevitably, the cost of getting more detailed data exceeds the preferences.