Choosing Cost Drivers

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Chemical Process Industries By Shreve Free Download Pdf. Activity Based Costing (ABC) is a two-stage product costing method that assigns costs first to activities and then to the products based on each product's use of activities. An activity is any discrete task that an organization undertakes to make or deliver a product or service. Activity-based costing is based on the concept that products consume activities and activities consume resources. Activity-based costing involves the following four steps: 1.- Identify the activities -such as processing orders- that consume resources and assign costs to them. 2.- Identify the cost driver(s) associated with each activity.

Ideally, a cost driver is an activity that is the root cause of why a cost occurs. In the past century, the root cause of indirect manufacturing costs has changed. Answer to Choosing cost drivers, activity-based costing, activity-based management. Annie Warbucks runs a dance studio with childc.

Choosing Cost Drivers

A cost driver causes, or 'drives' an activity's costs. For the order-processing activity, the cost driver could be the number of orders. 3.- Compute a cost rate per cost driver unit or transaction. Reliable In Camera Playback Patch V23b. The cost driver rate could be the cost per order, for example.

4.- Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product. For example, the cost per order multiplied by the number of orders processed for a particular song during the month of March measures the cost of the order processing activity for that song during March. Identifying activities that use resources. Often the most interesting and challenging part of the excercise is identifying activities that use resources because doing so requires understanding all activities required to make a product. In fact, much of the value of activity-based costing comes from this excercise even without changing the way product costs are computed. When managers step back and analize the processes (activities) they follow to produce a good or service, they often uncover many nonvalue-added steps, which they can eliminate.

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