hi its the first time am doing f5 and i dont understand activity based costing.sure you might say god sake its too easy but i dont know where to start with ABC please help.want to know the steps to follow.thanks
To simplify understanding, I fill in a table with 6 columns:
1) Cost type (text, given )
2) Annual cost (amount, given)
3) # of cost drivers (number, given)
4) cost / driver
5) drivers / unit
6) cost / unit
But I’ve just started preparing for F5 and probably this is not a best strategy.
By the way, below are steps suggested by Kaplan:
Step 1: Group production overheads into activities, according to how they
A cost pool is an activity which consumes resources and for which overhead
costs are identified and allocated.
For each cost pool, there should be a cost driver. The terms ‘activity’ and
‘cost pool’ are often used interchangeably.
Step 2: Identify cost drivers for each activity, i.e. what causes these activity
costs to be incurred.
A cost driver is a factor that influences (or drives) the level of cost.
Step 3: Calculate an OAR for each activity.
The OAR is calculated in the same way as the absorption costing OAR.
However, a separate OAR will be calculated for each activity, by taking the
activity cost and dividing by the cost driver information.
Step 4: Absorb the activity costs into the product.
The activity costs should be absorbed back into the individual products.
Step 5: Calculate the full production cost and/ or the profit or loss.
woah you seems to know a lot on this chapter as compared to me lol
thanks a lot i will try those steps and see how its goes.
f5 seems to be very challenging.hope i will see a way out:)
thanks for your reply.
I have another question for ABC-How to explane the difference between the cost cards total for the products under ABC and Traditional AC.
E.G. (X=23,Y=38) total costs undear Trad Abs Costing (X+Y) 61 and under ABS (X+Y) 66.05 ? Suppose the Cost Cards p.u. multiply by the units produced will give the Total Costs, but in case the costs are the same, only the Absorption metod differs, why we have difference in cost cards total, isn’t this difference in costs total generally? Hope somboby can make it clear.Thank you!
can you explain more, i dont know the term (x=23, y=38…)
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