Page 12 - Manac Costing Test 1 class slides - 3. Activity-based Costing (ABC)
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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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