Question
In: Accounting
The process of using activity-based costing information to manage a business’s activities, and thus its costs,...
The process of using activity-based costing information to manage a business’s activities, and thus its costs, is called activity-based management. How do managers use the information provided by an activity-based costing system?
Solutions
Expert Solution
Activity based costing method allocates the over expenditure to individual product as per the utilisation of the resources. Managers uses this information in a business in the following ways.
1) They get to know the accurate cost which is related to the product accurately because it is based on actual consumption of the resources. hence the overhead cost allocated to the product is its actual overhead cost for producing the product.
2) At time of launching a new product in the market it helps them to take a better decision regarding the selling price to be set for the product.
3) It determines any excess capacity or any possibility of cost reduction based on the resources available and the actual resources consumed by the products.
4) It provide them the responsible cost centres, on the basis of which the overhead cost are distributed among the product, and the performances as well as the cost behaviour as so as to understand no unwanted expenses are incurred.
5) Overall it gives a better understanding to the management to understand the total cost which is incurred and its allotment to different products and whether the resources have been fully utilised by the products or not.
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ekkarill92 answered 1 year agoRelated Solutions
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