Page 3 - PowerPoint Presentation
P. 3
ACTIVITY BASED COSTING
Absorption Costing
Traditional volume based measures
• Overheads are allocated to units on an arbitrary
basis (using machine hours/labour hours/number of
units manufactured).
• Less accurate in the costing of products because cost
drivers are used where no cause and effect
relationship exists to assign costs to products.
• E.g. using machine hours as the basis to allocate
overheads such as: product design, quality
control, production planning, ordering, machine
set-ups, despatching and customer services.
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