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    Activity Based Costing and Pricing

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    1. What is activity-based Costing? How can banks use it in their business? Explain.
    2. How can banks link activity-based costing to performance management? Explain.
    3. How can activity-based costing provide useful information on costs? Explain.
    4. How is activity-based costing useful in measuring customer profitability? Explain.

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    Solution Preview

    1) Activity-based costing is an accounting method that breaks down fixed overhead and variable overhead cost in very finite detail and then allocates it to the activity that is driving the costs. For example, if a bank has a mortgage department that occupies one floor of a 3-floor office building, the fixed costs for the mortgage department would be 33.33% of the total fixed costs. You could apply this ...

    Solution Summary

    This solution defines activity-based costing and explains how banks can use it in their accounting practices, how it can be linked to performance management, how it can provide information on costs, and how it can be used to assess customer profitability.