Question

Q: Give example related to ABC costing and find the overhead allocation rate for this example using ABC Costing? Discuss the advantages of using ABC Costing?

Please answer not picture or no plagiarism

Please answer not picture or no plagiarism

Please answer not picture or no plagiarism

Answer 1

ABC Costing is a method of overhead allocation to products and services based on activities consumed rather than using traditional cost driver like machine hour rate or labor hour rate

For example, Machine set up needed for Product A is 10 and Product B is 15

If total set up cost incurred is $75,000, Cost driver rate is $3,000 per set up

Cost allocated to Product A is $30,000 and Product B is $45,000

Advantages of ABC Costing:

• Helps in giving accurate picture of product costing
• Helps in Price setting for products and services
• Helps in taking reliable decisions like launch of new product, discontinue products, etc
• Helps in Cost control and cost reduction exercise
• Helps in Strategic performance management