Q8RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What are the four steps to developing an activity-based costing system?

Step-by-Step Solution

Answer

Answer

1. Assigning Costs to Activity Cost Centers
2. Identifying Activities
3. Assigning the cost of the activities to the products
4. Choosing the appropriate cost drivers

 

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

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

Step 2: Steps to developing an activity-based costing system.

The following are the four steps to creating an activity-based costing system: 

Step 1: List activities and calculate total indirect costs for each one. 

Step 2: Determine the cost driver for each activity and calculate the total amount of the allocation base for each driver. 

Step 3: Calculate the rate at which overhead is allocated for each task. 

Step 4: Assign the cost object with indirect expenses in step four.