Question

Read at least 2 academically reviewed articles and Write an annotated bibliography paper on Activity Based Costing

Answer 1

Activity-Based Costing- Activity-based costing is a methodology that helps in assigning a cost to activities instead of products or services. Activity-based costing enables overhead & resources costs to be more accurately assigned to products & services that consume them. Activity-based costing assigns a cost to activities on their use of resources. Following terms has been used in Activity-based costing (ABC) - Activity: Activity refers to an event that incurs costs related to any activities, Cost Object: Cost object is an item for which cost measurement is required. and Cost driver: Two types of cost drivers are used which are Resource cost driver & activity cost driver. The cost pool represents a group of various individual cost items.

Under activity-based costing, the cost is attributed to the product on the basis of activity. Stages in Activity-based costing are identifying the different activities within an entity; Relate the cost or overheads to the related activities; support activities are then spread across the primary activities; determine the cost drivers & calculation of activity cost drivers rate for each activity.

Activity cost drivers rate can be calculated as Activity cost drivers = Total cost of activity / Activity driver.

Advantage of Activity Costing are - it is a more accurate costing of products or services; Overhead allocation is done logically; Activity-based costing use unit cost rather than total cost. - The disadvantage of Activity Costing are - Activity-based costing is expensive for an entity; Activity-based costing is useful for large entities only; Sometimes, the selection of cost drivers may not be too much use for that activity.