Topic_10_Activity_Based_Costing_Flashcards
(10 cards)
What is activity-based costing (ABC)?
A method that assigns overhead costs based on activities that drive them.
Why do companies use ABC?
It provides more accurate product costs, especially with diverse products.
What are the four types of ABC activity levels?
Unit, Batch, Product Line, Facility Support.
What is a cost driver?
A numerical measure that links activities to costs (e.g., batches, gallons).
What’s the first step in implementing ABC?
Identify overhead cost activities.
Why might traditional costing be misleading?
It uses a single rate that may not reflect real cost behavior.
What types of companies benefit most from ABC?
Companies with multiple products and complex production processes.
What’s an example of a product-line cost driver?
Number of ingredients or engineering time.
Why are facility support costs not assigned to products in ABC?
They can’t be reliably traced to specific outputs.
When is ABC not worth implementing?
In companies with similar products or simple operations.
