Question

What do you understand by ABC? And Explain the process used to assign costs in an ABC system?

Answer 1

Activity based costing is an administrative bookkeeping technique that follows overhead expenses to exercises and afterward doles out them to objects. At the end of the day, it's an approach to distribute backhanded, overhead expenses to items or offices that create these expenses in the generation procedure.

Stages and Flow of Costs in ABC:

There are two essential stages in ABC—first, traacing expenses to exercises; second, following activi­ties to items.

Stage 1:

Distinguish the principle exercises in the association.

for example, Materials taking care of, buying, receipt, dispatch, machining, gathering et cetera.

Stage 2 Identify the elements which decide the expenses of an activity. These are known as cost drivers. Models include: number of procurement orders, number of requests conveyed, number of set-ups et cetera.

Stage 3:

Gather the expenses of every activity. These are known as cost pools and are specifically equal to regular cost focuses.

Stage 4:

Charge bolster overheads to items based on their utilization of the activity, communicated as far as the picked cost driver (s).

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