Скачать или смотреть ACTIVITY BASED COSTING ABC METHOD OF OVERHEAD ABSORPTION

Activity-Based Costing (ABC) is a dynamic and innovative approach to allocate overhead costs within an organization's accounting system. Unlike traditional methods of overhead absorption, such as the simple allocation of overhead based on direct labor hours or machine hours, ABC recognizes that not all activities consume overhead resources at the same rate or in the same proportion.

In the ABC method of overhead absorption, costs are allocated to products or services based on the specific activities that drive those costs. It involves a detailed analysis of the various activities and processes that contribute to overhead expenses, and then assigns costs to those activities in a more accurate and granular manner.

Here's a breakdown of the key elements of the ABC method of overhead absorption:

Activity Analysis: The first step involves identifying and categorizing all the activities and processes within an organization that contribute to overhead costs. These activities can range from machine setup, material handling, quality control, to administrative tasks.

Cost Assignment: Once activities are identified, the next step is to assign costs to each activity. This includes both direct costs (costs that can be directly traced to an activity) and indirect costs (costs that are shared across multiple activities).

Activity Drivers: ABC relies on activity drivers or cost drivers, which are specific factors or metrics that measure the level of activity within each cost-driving activity. For example, the number of machine setups or the number of orders processed could be used as activity drivers.

Cost Allocation: With activity drivers in place, the overhead costs are allocated to products or services based on the actual consumption of each activity. This results in a more accurate and fair distribution of overhead costs.

Better Decision-Making: The ABC method provides management with a clearer understanding of the true cost of producing each product or providing each service. This information helps in making informed decisions about pricing, product mix, process improvements, and resource allocation.

Enhanced Cost Control: By identifying activities that consume the most resources, organizations can focus on optimizing these processes and reducing costs where necessary, leading to improved cost control and profitability.

In summary, the Activity-Based Costing (ABC) method of overhead absorption is a sophisticated cost allocation technique that offers a more precise and insightful way to understand how overhead costs are incurred and assigned to products or services. It provides organizations with the tools to make informed decisions, streamline operations, and ultimately enhance their financial performance. ABC is particularly beneficial in industries with diverse product lines, complex processes, and varying levels of overhead utilization.

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