Activity Based Costing And How It Works

1329 Words6 Pages
I chose to write about activity based costing. I chose to write this paper because I wanted to know more about activity based costing and how it works. According to our text, activity based costing (ABC) has received a lot of attention since the 90’s. ABC has a lot of more details and can be more complicated than all the other costing methods, however it’s more accurate. “Costing systems are information systems. They require a specific type of information such as direct labour hours and units produced, to be of value. It is from the input data that product costs and other information are determined according to the specific costing system defined methodology. The results obtained would depend on the costing system used, since the same input data could be used in different ways. In this case the traditional costing system or an activity based costing system” (Marx.) A costing system should provide information to help minimize waste, but should not be wasteful in itself. In other words, the resources required to design, implement and maintain a costing system should be less than the benefit derived from the use of the system (Marx.) “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. It then assigns the cost of those activities only to
Get Access