Activity Based Costing (ABC System) | CA Inter Cost Accounting Chapter – 5 | As Per ICAI New Scheme

Activity Based Costing (ABC System) | CA Inter Cost Accounting Chapter – 5 | As Per ICAI New Scheme

In This Video We Will Discuss the Activity-Based Costing ABC System all Concepts and Problems With Solutions for CA Intermediate and CA Intermediate Cost Accounting Chapter 5 Have Been Discussed By Chandan Poddar Sir For CA Intermediate Grooming Education. #CostingCommando

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Time Stamp:
0:00 Intro
0:15 Activity Based Costing
0:45 Traditional Costing System
4:56 Question (8-12 Marks)
29:05 Question

Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product.

Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.

Activity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.
An activity is a cost driver, such as purchase orders or machine setups.
The cost driver rate, which is the cost pool total divided by cost driver, is used to calculate the amount of overhead and indirect costs related to a particular activity.

ABC is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.

The ABC calculation is as follows:

Identify all the activities required to create the product.
Divide the activities into cost pools, which includes all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool.
Assign each cost pool activity cost drivers, such as hours or units.
Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.

The ABC system of cost accounting is based on activities, which are any events, units of work, or tasks 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.

Activity-based costing (ABC) enhances the costing process in three ways. 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.

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