Companies move to Activity-based costing to better understand the true costs of goods and services. The activities that go into them Resources consumed by these activities ABC contrasts with traditional costing cost accountingwhich sometimes assigns costs using somewhat arbitrary allocation percentages for overhead or the so-called indirect costs.
This costing system is used in target costing, product costing, product line profitability analysis, customer profitability analysis, and service pricing. It is also hugely popular since organizations can develop a much better corporate focus and strategy if costs are better grasped.
Definition of Activities in ABC System The ABC system of cost accounting is based on activities, which is any event, unit of work, or task with a specific goal, such as setting up machines for production, designing products, distributing finished goods, or operating machines.
Activities consume overhead resources and are considered cost objects. Under the ABC system, an activity can also be considered as any transaction or event that is a cost driver. A cost driver, also known as an activity driver, is used to refer to an allocation base. Examples of cost drivers include machine setups, maintenance requests, power consumed, purchase orders, quality inspections, or production orders.
There are two categories of activity measures: These levels include batch-level activity, unit-level activity, customer-level activity, organization-sustaining activity, and product-level activity. First, it expands the number of cost pools that can be used to assemble overhead costs.
Instead of accumulating all costs in one company-wide pool, it pools costs by activity. It also creates new bases for assigning overhead costs to items such that costs are allocated based on the activities that generate costs instead of on volume measures, such as machine hours or direct labor costs.
Finally, ABC alters the nature of several indirect costs, making costs previously considered indirect- such as depreciationinspection, or power- traceable to certain activities. Alternatively, ABC transfers overhead costs from high-volume products to low-volume products, raising the unit cost of low-volume products.May 13, · What advantages do you think an activity based costing system provides or would provide for Pepsico?
Is there any etical issues that might arise for Pepsico> What 3 budgets would you prepare as part of and operating budget for Pepsico?Status: Resolved.
PepsiCo Inc.'s work-in-process declined from to but then increased from to exceeding level. Finished goods Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale.
V- The Use of ABC- the Activity Based Costing As mentioned, proponents of ABC argue that this costing system is more useful. As for Coca-Cola company, many, if not all of its activities has cost drivers if they need to have a cost.
May 13, · What advantages do you think an activity based costing system provides or would provide for Pepsico? Is there any etical issues that might arise for Pepsico> What 3 budgets would you prepare as part of and operating budget for Pepsico?Status: Resolved.
Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours.
Activity based costing first assigns costs to the activities that are the real cause of the overhead.
Activity-Based Costing Activity-Based Costing Activity based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity.