Activit2 - ACTIVITY-BASED COSTING

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ACTIVITY-BASED COSTING Broadly,  activity-based costing (ABC)  is an approach for allocating overhead costs. More  specifically, ABC allocates overhead to multiple activity cost pools, and it then assigns the activity  cost pools to products and services by means of cost drivers. To understand more clearly what that  means, you need to apply some new meanings to the rather common-sounding words that make up  the definition: In activity-based costing, an  activity  is any event, action, transaction, or work  sequence that incurs cost when producing a product or providing a service. An  activity cost pool  is  the overhead cost attributed to a distinct type of activity (e.g., ordering materials or setting up  machines). A  cost driver  is any factor or activity that has a direct cause-effect relationship with the  resources consumed. The reasoning behind ABC cost allocation is simple: 
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Activit2 - ACTIVITY-BASED COSTING

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