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Is activity-based costing an inventory valuation method or a cost accumulation method? Please provide a reference...

Is activity-based costing an inventory valuation method or a cost accumulation method? Please provide a reference for your answer

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Answer #1

Answer---- activity based costing is a cost allocation method.

In activity based costing every overhead cost is decided into various activities such as order processing, machine setup , supporting labour, supervision and is allocated to diffrent products on the basis of activities used by those products such as order processing in the basis of number of orders, setup cost in the basis of number of setups , supporting labor cost in the basis of labor hours etc.

Activity based costing is considered a better way than traditional method of allocation as it keeps in mind the real use of resources and gives a better picture of profits from various products or divisions.

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