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what assumptions must be met for ABC costing to be useful ?

what assumptions must be met for ABC costing to be useful ?

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Answer #1

Assumptions of Activity-Based Costing

1. Resources (like material, labours etc) must be used or consumed by performing activities.

2. The activity mentioned in point 1 is consumed by a product or consumer

3. ABC Models focuses on consumption rather than on spending.

4. Resources consumed have numerous causes, the same is charged according to the activity mentioned above.

5. Cost pools are homogeneous, which means that each cost has only one activity.

6. Costs in each pool are variable (strictly proportional to activity).

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