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Activity Based Costing Allocation

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Allocation of support center costs is an important topic for product costing. In recent years, the issue of accurate product costing has assumed considerable importance. Managers need to be fully aware of how products are costed and the limitations associated with those assignments.

Why did traditional costing systems base allocations on a single company-wide cost driver? What is the difference between volume-based cost drivers and activity-based cost drivers? Why do activity-based cost drivers provide more accurate allocations of overhead in an automated manufacturing environment? Briefly describe the activity-based costing allocation process.

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Solution Summary

the author explains why traditional costing systems use single cost drivers and explains the difference between volume based cost driver and activity based cost drivers. The author states that activity based drivers are more accurate and explains why. The whole process is then described.