Activity-based costing
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2. What has happened in recent industrial history to reduce the usefulness of direct labor as the primary basis for allocating overhead to products?
3. In an automated manufacturing environment, what basis of overhead allocation is frequently more relevant than direct labor hours?
4. What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?
5. A) What are the principal differences between activity-based costing (ABC) and traditional product costing?
B) What assumptions must be met for ABC costing to be useful?
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The solution discusses the key concepts of activity based costing.
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2. What has happened in recent industrial history to reduce the usefulness of direct labor as the primary basis for allocating overhead to products?
The increase of automation has reduced the usefulness of direct labor as the primary basis for allocating overhead to products. This is because the proportion of labor cost to the total cost has reduced drastically.
3. In an automated manufacturing environment, what basis of overhead allocation is frequently more relevant than direct labor hours?
Machine hrs will be more relevant than the direct labor hours.
4. What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?
Under a traditional costing system the overhead allocation will be high to high- volume products than the low volume products. This is because more labour hrs will be devoted to the high volume products.
5.
A) What are the principal differences between activity-based costing (ABC) and traditional product costing?
Activity-Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure. Activity- based costing can ...
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