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    A Discussion on Product Costing

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    Some firms have a lot of fixed costs and a few variable costs, while other firms are configured the other way around. What effect do you think the existence of a high proportion of fixed costs has on the desirability of using ABC methods?

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    https://brainmass.com/business/product-costing/a-discussion-on-product-costing-231049

    Solution Preview

    Meaning:

    Activity-Based Costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to products and services according to the actual consumption by each in order to arrive at the actual cost of products and services.

    In ABC, costs of all an organization's resources are assigned to the products and services that the organization manufacture/render. The main intention behind the assignment of resource cost to the product/services is to find out the cost of the product and the resultant profitability.

    Purpose:

    The main purpose of Activity Based Costing is the elimination of unprofitable activities in the organization. Further, to identify the over priced activities in ...

    Solution Summary

    This solution contains the meaning of activity based costing, its purpose and a comparison between traditional costing and ABC. Additionally, this response details the reasons why a firm with high fixed costs uses activity based costing rather than a traditional costing system. This is all completed in about 450 words.

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