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Going back to ABC process, as I understood, the activities, that can be associated with cost drivers are variable costs. Then fixed costs are those with which no cost driver can be associated, like heating? is it correct? or we can still allocate heating costs using say labour hours? Is it then true that ABC can divide costs into variable and fixed or those that are relevant for the decision and unavoidable?
Thanks.
No – that is not correct.
We are dealing with all overheads – variable and fixed,
In the exam you will be told the cost driver for each activity, but in practice it is not always possible to find a cost driver for some overheads in which case they will be absorbed using traditional absorption costing which may be to do it per labour hour, or per machine hour, of whatever we want.
Avoidable and non-avoidable is nothing to do with it – we are not making a decision, we are trying to calculate a cost per unit for each product when we produce several products.
You may find the free lecture on ABC to be useful.
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