Activity Based Costing Homework Help
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What is Activity Based Costing?
A methodology which identifies all the activities that happen in an organization and then assign the cost of each activity. All the products, resources and services are calculated in order to measure the cost of each activity. The process of assigning cost to the products is redefined here as compared to the earlier process of assigning cost on the basis of the machine hours required to manufacture a product. So a product cost not only include the cost of producing a product but also designing, engineering of any special kind, machinery, their installation, packaging and testing cost.
This is an ideal way of defining a cost as the cost of producing one product is different from that of the another product. This process of costing has become popular these days as manufacturing overhead cost has increase along with the machine and direct labor cost. So a product produced in large batches cost cheaper as compared to those which are produced in small batches. Also the overhead cost is varied because of number of activities such as handling charges, production cost, procurement charges etc. so different products will cost different processes. Since the process is quite cumbersome task studying Activity based costing is not easy.
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