ABC Costing Flashcards
Difference between ABC and absorption
The way the production overhead cost is included within the standard cost per item.
Is there a difference in direct material and direct labour under ABC or absorption costing?
No.
What is ABC driven by?
Activities, known as cost drivers
What does each activity/cost driver have?
Cost pool
What is a cost pool?
Total overhead cost generated by that activity.
Advantages of ABC
More accurate cost per batch (more important for management decisions and for negotiating price with retailers)
Able to understand more what drives overhead costs
ABC is considered more useful where labour is a small part of overall production and costs and overheads more significant element.
Disadvantages of ABC
Application of ABC can be more time consuming and therefore costly due to level of details required.
ABC more useful for complex and a high number of products. HalfPenny only offer bread so the extra benefit is questionable.
Is a switch to ABC justified?
No.
Our product range makes our costing process quite simple.
The extra cost and commitment required to adopt ABC isn’t justified but may be if the range is extended.
What will change the price we are able to charge (not including cost)?
Customers perception & demand
Competition
Organisation objectives - if we release a new product, we may not feel the need to charge premium price to enable us to gain sales, atleast in the short term.
