Page 62 - UNISA Manac Cost Course Slides Part 1

TEST 3 - COSTING

Absorption costing

Activity based costing

• ABC uses many allocation bases / cost drivers to allocate

overheads to products. The Prime cost ( direct material and

labour) remain unchanged

• By identifying cost drivers (factors which cause a change in

the cost of an activity) and assigning costs to products on

the basis of cost driver usage, products are more

accurately costed.

• The cause and effect relationship provides a superior way

of costing products.

Note: The total overhead does not change – only the

method of allocation changes

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