ABC costing

Question 1

Why is costing important?

Answer 1

1) Identify the true costs of a product.
2) Indetify profitable and loss-making products/ services.
3) Compare cost structures for competing products.
4) Discover cost improvement opportunities.
5) Prepare a reliable business plan and improve strategic decision-making.
6) Pricing

Question 2

What are the four steps for ABC?

Answer 2

11) Identify the major activities that take place in an organisation.
2) Assigning costs to activity cost centres.
3) Selecting appropriate cost drivers.
4) Assigning the cost of activities to products according to the product’s demand for activities.

Question 3

How to select a driver for ABC?

Answer 3

1) Provide a good explanation of the costs of each activity pool.
2) Be easily measurable.
3) The data should be easy to obtain and identifiable with the product.