Contents
What is activity-based costing explain its benefits?
Provides realistic costs of manufacturing for specific products. Allocates manufacturing overhead more accurately to products and processes that use the activity. Identifies inefficient processes and target for improvements. Determines product profit margins more precisely.
What are three advantages of activity-based costing?
What are three advantages of activity-based costing over traditional volume-based allocation methods? More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making.
Which of the following is not a benefit of ABC costing?
Reduction of prime cost is not the benefit of the activity-based costing system. Explanation: In an activity-based cost system, a unique measure of cost is applied to the products and manufacturing items. A more accurate system of allocating the costs to the products is exercised in the ABC system.
What are the advantages and disadvantages of ABC costing system?
Advantages and Demerits of Activity Based Costing (ABC)
- Accurate Product Cost:
- Information about Cost Behaviour:
- Tracing of Activities for the Cost Object:
- Tracing of Overhead Costs:
- Better Decision Making:
- Cost Management:
- Use of Excess Capacity and Cost Reduction:
- Benefit to Service Industry:
What is the main characteristic of absorption costing?
The features associated with absorption costing are as follows: In the absorption costing a product, the cost is determined on the basis full cost, i.e., variable and fixed manufacturing cost. The cost of inventory will be higher in absorption costing as product cost includes fixed factory overhead.
What are the advantages and disadvantages of ABC costing?
It is easy to find cost saving opportunities in this kind of costing system. Product mix problems can be better addressed when the system like ABC Costing is in place. Knowledge of costing, cost accounting, costing terms such as cost drivers, allocation, cause and effect relation, etc is a must. It is not a job of a layman.
When to use the ABC method of Cost Assessment?
Scientific pricing is the main principle of using the ABC method of cost assessment. In 2002 Homberg did an in depth study on the use of activity based costing and found it to be one of the most effective ways to cut overhead costs. There are a couple different variations of the activity based costing method.
What are the benefits of using the ABC?
The ABC allows for effective planning as it assigns costs directly to activities and this makes it extremely beneficial for people involved in cost lowering and process improvement programs. Through using ABC, all the activities that form a certain process are going to be accounted for accurately.
Is the ABC method of spending a good idea?
This ABC method of spending has been around since the 1980’s and has been implemented by many different businesses around the world. While cutting costs is generally a well received concept, there can be many downfalls that come along, especially with the activity based costing method of doing so. 1.