Page 4 - PowerPoint Presentation
P. 4
ACTIVITY BASED 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
4
