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Is it possible that the activity based costing approachof controlling product/service costs could be applied to...

Is it possible that the activity based costing approachof controlling product/service costs could be applied to period costs? Explain

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Expert Solution

Activity Based Costing is an approach of apportioning Indirect costs to products based upon the resources they use rather than the traditional approach of apportioning them on the basis of direct material / direct labour.

Activity Based Costing approach can be applied to both period as well as non-period cost. There is no restriction that is can't be applied to period costs. For e.g. Factory rent is a period cost i.e. its amount is fixed every month. Now suppose a company manufactures three products 3 products A, B and C. A consumes 20% of the factory area, B consumes 50% and C consumes 30%. Now any factory rent paid shall be divided among 3 products in the ratio of 2:5:3 i.e. in the ratio of area used by them.

Now factory rent was a period cost, still it was apportioned on the basis of Area utilised.

Therefore, it can be said that Activity Based Costing approach of controlling product/service could be applied to period costs.

ekkarill92 answered 1 year ago
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