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Activity Based Costing & Cost PDF

Activity-based costing (ABC) is a method that assigns costs to products based on the activities they require, providing more accurate cost data compared to traditional costing methods. Key components of ABC include activities, cost pools, cost drivers, and cost objects, which help in understanding overhead costs and improving pricing decisions. While ABC offers enhanced insights and control, it can be complex and may not be suitable for all businesses.

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16 views10 pages

Activity Based Costing & Cost PDF

Activity-based costing (ABC) is a method that assigns costs to products based on the activities they require, providing more accurate cost data compared to traditional costing methods. Key components of ABC include activities, cost pools, cost drivers, and cost objects, which help in understanding overhead costs and improving pricing decisions. While ABC offers enhanced insights and control, it can be complex and may not be suitable for all businesses.

Uploaded by

pragati2003sahu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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presented by :

1. lalit R Tadavi ( 24181 )


2 . Tejasvi Ramesh Tare ( 24183 )
3 . Bhumika Karsan Thakare ( 24185 )
4 . Vishal Sudam Thakare ( 24186 )
5 . Veena Amit Toraskar ( 24188 )
6 . Ayush Upadhyay ( 24190 )

Date : [ insert here ]


Course / Department : [ insert here ]
INTRODUCTION TO COSTING

 Activity-based costing (ABC) is a costing method that assigns costs to


products or services based on the activities they require, rather than
traditional methods that allocate costs based on factors like direct labor or
machine hours.
 It identifies activities within an organization and then assigns the cost of
each activity to the products or services that consume those activities.
 This enables resources and overhead costs to be more accurately assigned
to the products and the services that consume them.
 ABC is based on the principle that 'products consume activities.
 Traditional costing allocates
overhead costs to products using a
single cost driver, like direct labor
hours or machine hours, and a
predetermined overhead rate.
 Cost Drivers: Traditional costing
relies on a single cost driver, such
as direct labor hours, machine
hours, or the number of units
produced.
 Uniform Allocation: The overhead
rate is applied uniformly to all
products, meaning that products
receive the same amount of
overhead per unit of the chosen
cost driver.
Activity-based costing (ABC) is a costing method that
allocates overhead costs to products or services based on
the activities that drive those costs. Unlike traditional
costing methods, which often use volume-based
allocation, ABC focuses on identifying the specific
activities involved in production and assigning costs to
those activities, and then to products based on their
consumption of those activities.
The key components of ABC are :

 Activities : These are the tasks or processes that an organization performs to


create and deliver its products or services.
 cost pools :Costs within a cost pool are grouped together because they are
all driven by the same activity.
 cost drivers : These are the factors that cause the costs of activities to vary.
 cost objects. Costs are allocated to cost objects based on the resources
they consume, which are tracked through the use of cost drivers.
 1. Accurate Product Costing

 2. Improved Pricing Decisions

 3. Enhanced Cost Control

 4. Better Understanding of Overhead Costs

 5. Support for Performance Management


 Complexity and Cost
 Data Collection and Analysis
 Accuracy and Bias
 Potential for Errors
 Not Suitable for all Businesses
 Maintenance Costs
 Resistance to Change
ABC provides more accurate cost data by tracing
overhead costs to specific activities and cost
objects. However, it can be complex and time-
consuming to implement. Traditional costing is
simpler and faster, but allocates overhead
arbitrarily, leading to less precise cost data.
 ABC offers accurate insights inti costs.
 Better for complex environments
 Helps in pricing , budgeting and improving efficiency.
 Choose based on organization size and complexity.

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