Unformatted text preview: TD- ABC Costing How does ABC costing differ from traditional allocation methods? Activity-Based costing
delineates fixed and/or overhead costs with activities (products/services) of a company and
requires a deeper analysis of costs than that of traditional costing. Traditional methods base costs
off known variables and weigh strictly against the revenue. ABC further allows better decisionmaking processes from the analysis and associated costs to see if money is actually being made
or lost on a product, or if there are identifiable variables which be increased or decreased.
What can an organization learn from the process of applying ABC costing? Providing decisionmakers with better estimation of all costs associated with a product and/or a service. The idea is
to more clearly show them which may be unprofitable or if pricing needs to be adjusted.
What affect do you think the existence of a high proportion of fixed costs has on the desirability
of using ABC methods? Using the ABC costing method by a company that has a high proportion
of fixed cost could be too difficult or costly to apply ABC.
What are some of the characteristics of firms generally benefiting from ABC cost allocations?
Overhead costs can be associated with a product or service and allow for better evaluation of a
product or service manager's performance. Another benefit is the measure of performance and
resource consumption of a product or service.
Is ABC just a method of allocating overhead costs? If not, discuss. ABC is a cost management
system that allocates fixed/overhead costs which identifies incremental costs and allows
decision-makers and managers to see the correlation between activities and costs. ...
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This note was uploaded on 10/15/2011 for the course ACCT 201 taught by Professor Anothony during the Spring '10 term at Trident Technical College.
- Spring '10