Re: help! activity based costing

Discussion in 'Accounting' started by Sarah Berel-Harrop, Aug 10, 2003.

  1. You kind of have apples and oranges here, ABC
    and absorption costing can both be present.

    In Absorption Costing, as opposed to Variable Costing,
    the fixed portion of overhead is allocated to inventory
    and CGS as opposed to appearing in full as a current
    period expense.

    Variable costing is not GAAP, and it is not acceptable
    for tax purposes, so the only time you would see it
    is in internal reporting.

    Barfield et. al's Cost Accounting has a pretty good
    discussion of this, with some exercises in which you
    construct P & L's under Variable and Absorption
    Costing. Doing a few of those is the best way to
    soldify understanding.

    ABC is a method of overhead allocation that
    separates costs into multiple pools and assigns
    the costs to products using a predetermined
    rate based upon cost drivers.

    For example, you might allocate QC costs
    based on the number of runs or batches. This
    is as opposed to allocation methods that simply
    allocate all costs based using a predetermined
    rate per unit. ABC should give you more accurate
    costing data.
    Sarah Berel-Harrop, Aug 10, 2003
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  2. Sarah Berel-Harrop


    Nov 29, 2014
    Likes Received:
    San Diego
    ABC can be used as an internal management tool, or for determining revenue. It can be used solely for budgeting, costing, or management. Read: "Relevance Lost" by H. Thomas Johnson, with Cooper and Kaplan, Harvard Business School. ABC is a method of allocating ALL costs and expenses to activities, regardless of whether it is direct or indirect. The term Overhead doesn't exist in an ABC system. That's turn of the century stuff.
    QBslave, Jan 6, 2016
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