What is activity-based costing and how is it used?
What is activity-based costing, and how is it used to allocate costs more accurately in cost accounting?
Answers
Activity-based costing (ABC) allocates overhead costs based on the activities that drive costs rather than just product volume. This method provides a more accurate view of cost distribution, helping businesses understand the true cost of each activity.
10 months ago
ABC helps in identifying cost drivers and evaluating the profitability of different products or services. By linking costs to specific activities, businesses can make informed decisions on resource allocation, process improvements, and pricing strategies.
10 months ago
The method supports more precise budgeting and financial forecasting by providing detailed cost information related to various business activities. This allows for better financial planning and management of resources.
10 months ago
ABC is used to identify and eliminate non-value-added activities, leading to cost reduction and efficiency improvements. By focusing on activities that contribute to value creation, businesses can streamline operations and enhance profitability.
10 months ago
Implementing ABC can be complex and require significant changes to existing cost accounting systems. However, the benefits of accurate cost allocation and better decision-making often outweigh the challenges, especially for businesses with diverse products or services.
10 months ago
Related Questions
- What are the best practices for managing payroll?
- How does GST litigation support impact compliance and risk management?
- What tools and resources are available for managing secretarial records?
- What is capital raising and why is it important?
- What are common challenges in claiming tax reliefs and allowances?
- What are the key components of an international tax compliance program?
- What are the benefits of accurate earnings reports?
- How can payroll management systems improve accuracy?
- What are the potential outcomes of GST litigation support services?
- How often should secretarial records be reviewed and updated?
- View all answers