Managerial Accounting, - Chapter 3 - Activity Bases Costing Hierarchy of Activit

Question

Managerial Accounting, - Chapter 3 - Activity Bases Costing

Hierarchy of Activities included these four activities:

1.___________________________________________

2.___________________________________________

3.___________________________________________

4.___________________________________________

___________________ An event that causes the consumption of overhead resources.

___________________ Anything for which cost data are desired.

___________________ A “bucket” in which costs are accumulated that relate to a single activity measure in an activity based costing system.

___________________ A factor, such as machine-hours, beds occupied, computer time, flight hours, direct labor hours or direct labor cost, that causes overhead costs.

What are the four steps in an activity based costing system?

1.___________________________________________

2.___________________________________________

3.___________________________________________

4.___________________________________________

Give 5 examples of activities that might be used if a company were using an ABC system:

1.___________________________________________

2.___________________________________________

3.___________________________________________

4.___________________________________________

5.___________________________________________

Explanation / Answer

A) The four steps in an activity based costing system are:

Step one : We have to identify all related activities and estimate the concerned overheads.

Step two : Judge the cost driver which would be applicable for the activity and estimate total quantum of the driver for base.

Step three: Calculate the Activity predetermined overhead rate for the allocation to the jobs.

Step four: Each job will be allocate the indirect costs according to the activity driver usage.

B) The activities that area used by the ABC system are called the cost driver or activity driver, through which the overheads are allocated to the various jobs. The examples of the Activities used or Cost drivers used by ABC system are:

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