Activity Based Costing - What is it???!

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:25AM in AAT student discussion
Can anyone explain what Activity Based Costing is?

I dont understand the difference between this & Marginal & Absorption costing. My tutor said last week she had a feeling this may get tested in tommorrows exam & I've only just remembered I have no idea what it is...HELP!!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Activity Based Costing - What is it???!

    From the Osbourne Text book:-

    Activity based costing is a development of absorbtion costing, and uses a more sophisticated system to deal with the indirect costs. This involves examining indirect costs to determine what causes them, and using this information to charge the costs to the unit of output in an appropriate manner.

    Basically you look at what time is taken for each part of an operation and apportion the cost based on this, for example set up costs, admin etc.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Activity Based Costing - What is it???!

    Marginal Costing - take into account the variable costs and any fixed overheads are charged as period cost to the profit and loss

    Absorption costing - Takes into acocunt of variables cost and fixed overheads, overheads are charged using a pre determined overhead sbsorption rate. Any diffences between actual and budgeted overheads are charged to the profit and loss.

    ABC Costing is charging costs to production using the actual volumes.

    You will need to know the steps for ABC, activies that an organisation may have, cost driver (how should costs be allocated to production), Collation of costs incurred and how to allocate the costs to work out the production cost.


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