1
Activity based costing:
ABC is a system in which various activities are identified. At first, costs of activities are calculated and then such cost is allocated to all the products. Relationship among costs, products and activities, established under this system, helps in the allocation of cost process.
An activity rate for each given activity.
2
Activity cost
Activity cost refers to the total cost that is incurred by each activity. This cost is calculated and then assigned to all the products with the use of a cost allocation base or measure.
To calculate: Total activity cost of given three dinner parties.
3
Average cost
Average cost, also known as unit cost, is calculated by the division of total cost and number of units.
To calculate: To convert amount calculated in part (2) to cost per dinner.
4
Cost per dinner:
cost per dinner can be calculated by dividing total cost with total number of dinners.
To explain: why the cost per dinner for three different parties differ.
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