A company\'s management accountant is trying to improve the way costs are alloca

Question

A company's management accountant is trying to improve the way costs are allocated within the company. Currently, several corporate expenses are grouped together and labeled "overhead." If the accountant wanted to use activity-based costing (ABC) to help solve the problem, what should she do?

Select one:

a. She should try to map the departments' costs to their cost objects, and then charge each department based on those cost relationships.

b. She should research how the company's competitors are allocating their costs, and then implement one of those strategies.

c. She should look for bottlenecks within the production process, and try to eliminate them, thus reducing costs.

d. She should examine the firm's value chain and apply target costing before adopting ABC.

Explanation / Answer

Option - a .............is correct one

a. She should try to map the departments' costs to their cost objects, and then charge each department based on those cost relationships.

Information on cost drivers and aggregation of cost to cost pools is the basic step towards ABC system of overhead absorption.

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