Question

A company that uses activity-based costing would likely allocate costs from:

Multiple Choice

A) service departments to production departments.

B) service departments to products and services.

C) service departments to production departments and then to products and services.

D) activity-cost pools to production departments.

E) activity-cost pools to products and services.

Answer 1

Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services

The ABC calculation is as follows:

1. Identify all the activities required to create the product.
2. 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.
3. Assign each cost pool activity cost drivers, such as hours or units.
4. Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.
5. Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.
6. Multiply the cost driver rate by the number of cost drivers.

so the allocation of cost is from activity cost pool to the product and services

option e is the correct answer