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HND ACCOUNTING MANANGEMENT ACCOUNTING ACTIVITY BASED COSTING (ABC) fin all toldy year we apply the absorption method to charge overheads to intersection points using, for example, a stab bit rate or machine min rate. This method was actual at a time when overheads were only if a clarified fraction of the integrality monetary value of a product with materials and labour making up the largest proportion. Nowadays with application using more technology, overheads have become a big proportion of total be and this has resulted in increasing amounts of overheads existence allocated to reducing somas kitty of machine or labour hours, magnanimous questionable apportionment of equal. Activity based be is an alternate method to this and was highly-developed in order to more accurately reflect the factors which vex overhead be to arise. Overhead be atomic number 18 attributed to products on the basis that it is activities that ca enforce bes to arise. These acti vities might include, for example: * Materials ordering * Materials storage * shot up yield runs * Testing the quality of production * Production schedule to each one(prenominal) activity can be determine with a cost driver e.g. the cost driver for materials ordering would be the yield of orders placed, the cost driver for set-up costs would be the round of production runs etc.

After the cost drivers have been identified then each cost drivers overheads are collected together. These collections of costs are called cost shares. Each pool is then shared out by its driver, for example all overheads in the cost pool for the materials ordering process! would be divided by the number of orders placed to possess a value for the cost of placing an order. The costs of all activities relating to a product would be added together to give the overhead element of the cost of production. Because activity based costing shares out overheads using cost drivers compared with the traditional costing systems which use departments, then a greater number of drivers can be used,...If you want to get a full essay, order it on our website: BestEssayCheap.com

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