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Activity Based Costing

Company A:
direct materials 7%
direct labor 13%
manufacturing overhead 80%

Company B
Direct materials 21%
direct labor 42%
manufacturing overhead 37%

Company C
direct materials 42%
direct labor 49%
manufacturing overhead 9%

Based on this information, which of the three companies would probably improve its product costing accuracy most by converting to Activity Based Costing (ABC) and explain why?

Activity based costing focuses on indirect costs such as overhead so I think it would be company A. Is this correct?

Solution Preview

You are correct. A is the right answer.

Activity Based Costing is an accounting system that assigns costs to products based on the resources they consume. The costs of all ...

Solution Summary

Evaluation of company performance based on Activity Based Costing