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System ABC in calculating indirect cost in a facility with an example?

System ABC in calculating indirect cost in a facility with an example?
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Answer #1

Activity-Based costing(ABC) is a method under costing which assigns overheads and indirect costs to related goods or services .It draws a relationship between overhead activities ,manufacturing cost and costs.

this system is mostly used in manufacturing industries. its is used to get a better graps on costs.

this system of cost accounting is used in product costing,analysing product line profitability.

example:

xyz has $50000 per year electricity bill. the number of labour hours( has a direct impact on the electricity bill)2500hours,which in this example is the cost driver.calculating the cost driver rate which is done by dividing $50000 with hours,yielding a cost of $20

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