Question

Put the following ABC implementation steps in order ________. A Use the activity overhead rates to assign overhead costs to cost objects. B Compute the allocation rates. C Trace overhead costs to cost pools. D Identify the activities and the overhead costs they cause.

Answer 1

Answer:

D Identify the activities and the overhead costs they cause.

C Trace overhead costs to cost pools.

B Compute the allocation rates.

A Use the activity overhead rates to assign overhead costs to cost objects

Explanation:

Activity base costing system is one that allocates overhead and indirect costs to a product. This is done based on level of activity involved in producing the product. Activity is therefore the cost driver.

Examples of activities include maintenance activity, machine setup, and purchase orders.

These types of cost are incorporated into the cost of production of the product.

The steps for implementing ABC system are:

-Identify the activities and the overhead costs they cause.

-Trace overhead costs to cost pools.

-Compute the allocation rates.

-Use the activity overhead rates to assign overhead costs to cost objects.