Activity Based Costing (ABC)

Question 1

Cost Rate Formula

Answer 1

Cost Pool / Cost Driver

Question 2

Cost Pool

Answer 2

Costs decided up into groups after the firms analysis.

Question 3

Cost Drivers

Answer 3

The factors that cause costs to change.

Question 4

Benefits of ABC

Answer 4

Focus on what drives costs so it assigns a greater proportion of overhead to the cost units that create the greater proportion of overhead.
Generates a more accurate full cost figure.
Allows managers to be more effective in reducing costs as it’s clear what creates and drives costs up.