Briefly describe the five (5) steps used to implement activity-based costing (ABC). What are the advantages of using ABC? State some disadvantages. PDF

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Briefly describe the five (5) steps used to implement activity-based costing (ABC). What are the advantages of using ABC? State some disadvantages....

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Briefly describe the five (5) steps used to implement activity-based costing (ABC). What are the advantages of using ABC? State some disadvantages.

Activity based costing is an accounting style of costing,that elaborates the connectivity that exist between costs over head activities,manufactured commodities, allocating direct costs to commodities less arbitrarily when compared to traditional costing schemes. In order words ABC is a costing procedure, that allocates overhead and indirect costs to associated commodities and services (WILL KENTON FEB 10 2020). The five steps used to implement ABC are ; recognize, track costing activities needed to complete commodities or products -Allocate overhead costs to various activities sorted out in step 1 recognize or track, the cost driver for each activity. -Compute(reckon) a pre-established/prearranged overhead rate for each activity. -Assign over head costs to commodities. 1. The aim is to comprehend the various activities needed to manufacture the company's products. This can be possible by getting into contact with workers throughout the organization.The most difficult thing here is summarizing various activities related to those with the biggest impact on overhead cost. 2. At this point we are able to recognize the most vital and costly activities needed to manufacture commodities. 3. A cost driver is the action that causes the cost connected to the activity. Pointing out cost drivers requires putting data together and talking or interacting with major workers in different domains within the company. For instance quality management, accounting,

buying,manufacturing. 4. It is obtained by dividing the evaluated overhead cost by the evaluated rate of cost driver activities. 5. It is obtained by multiplying the re-evaluated or pre-established over head level for a single activity by the rate of cost driver activity utilized by the product. Advantages ; -More accurate cost data leads to better decisions. It helps to simplify a complex system which is informed by two attributes, activity type and measure driver type or measurement. -It gives room for flexibility that is a choice in various rate of specification cost object etc. Disadvantages ; -Implementation of the system involves a lot of time, efforts and cash -maintenance is another setback,if the firm does not keep updating their system, the information provided might lead to poor decisions. REFERENCE - https://www.investopedia.com/terms/a/abc.asp 361 words...