Question

How is activity-based costing useful for pricing decisions

Answer in ur own words

Answer 1

Activity based costing is a one of the method to ascertain the cost of product and accordingly fixed the priced product . it’s a new methodology to to allocate indirect cost to cost object and calculate the unit cost of product. It’s an alternative of tradition method of costing.

Through use of Activity costing method , The accurate pricing of the product can be ensured by absorbing all relevant cost and indirect cost accurately,   to arrive the overhead charge which can be loaded on the product.

Activity Based costing also consider non- manufacturing expenses i.e. administrative and managerial cost. So, accurate overhead cost can be arrived and accordingly, price will be decide after considering all the cost while in tradition costing method, Non-manufacturing expenses are not considered.

Hence , I can be concluded that Activity costing method is most accurate method to ascertain the cost of product and to fix the pricing of the product.