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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.

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See Also This Related BrainMass Solution

Activity Based Costing Allocation Rates

6- ABC (activity-based costing) uses activity allocation rates in product costing. How are activity cost drivers used in ABM (activity-based management)?

7 - Difference between Unit-Based Costing and Activity-Based Costing

Which one of the following statements best summarizes the difference between unit-based costing (UBC) and activity-based costing (ABC)?

a. With UBC, costs are first allocated to departments; with ABC, costs are first allocated to activities.
b. With UBC, costs are first allocated to activities; with ABC, costs are first allocated to departments.
c. With UBC, costs are first allocated to departments; with ABC, costs are first allocated to products.
d. With UBC, costs are first allocated to products; with ABC, costs are first allocated to departments.

8 -Activity-Based Management
Which one of the following is a correct flow of information in activity-based management?

a. Activities to Costs to Products
b. Activity Cost Drivers to Performance Measures to Activities
c. Activity Cost Drivers to Activities to Performance Measures
d. Activity Cost Drivers to Activities to Performance Measures
e. Products to Activities to Costs

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