CAfD - Ch. 5 (Activity-Based Costing)

Question 1

What is activity-based costing?

Answer 1

Activity-based costing (ABC) is a methodology that focuses on activities.

Question 2

What is the main benefit of ABC?

Answer 2

When compared to other costing methodologies, it assigns indirect costs (overhead) more accurately. Because ABC uses more detail, your cost estimates become more precise. As a result, you price your products more effectively.

Question 3

What is product undercosting?

Answer 3

This happens when a product or service uses more resources (costs) than you assign.

Question 4

What is product overcosting?

Answer 4

This happens when a product or service uses fewer resources (costs) than you assign.

Question 5

What are the three tasks that make up creating a refined costing system?

Answer 5

1. Direct cost tracing. Review your direct costs and categorize more costs as direct costs, if possible.
2. Review cost pools. Review your cost pools and create more pools if necessary.
3. Cost allocation bases. Decide on cost allocation bases using the cause-and-effect criteria.