06 - Activity Based Costing

Question 1

steps involved in ABC

Answer 1

1. identify main + support activities
2. allocate costs to each activity
3. group activities in cost pools
4. identify the costs objects which use the activities of the cost pools
5. identify the cost drivers – which are the generators of resources used by the cost objects
6. allocate the activity costs to the cost objects, based on level of use + activity cost driver

Question 2

companies that may benefit from ABC/TDABC

Answer 2

multiproduct

high % of GPC in costs of products

complex production (difficult to allocate indirect costs through traditional methods)

diverse products (w/ diverse levels)

operate in competitive environments