Question

Which of the following is the proper sequence of events in an activity-based costing system? a. Calculation of pool rates, identification of cost drivers, identification of cost pools, assignment of cost to products. b. Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to products. c. Identification of cost drivers, identification of cost pools, calculation of pool rates, assignment of cost to products. d. None of the answers is correct. e. Assignment of cost to products, identification of cost pools, identification of cost drivers, calculation of pool rates.

Answer 1

Answer:

The correct answer is letter "B": Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to products.

Explanation:

Activity-Based Costing or ABC is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs. ABC is primarily used in the manufacturing sector to make a better calculation of the true cost of production per unit. For that purpose, ABC follows this sequence:

1)  Identification of the activities for the creation of the product

2)  Divide the activities into cost pools  

3) Assign each cost pool to a cost driver  

4) Calculation of the cost driver rates

5) Assignment of cost to products