Activity based costing case study greetings inc

Activity Cost Pool:the overhead cost attributed to a distinct type of activity For example: ordering materials or setting up machines Cost Drivers:any factor or activity that have a direct cause-effect relationship with the resources consumed. Chapter 4-10 Traditional Costing and Activity-Based Costing Activity-Based Costing

Costs are assigned to specific activities—planning, engineering, or manufacturing—and then the activities are associated with different products or services. In this way, the ABC method enables a business to decide which products, services, and resources are increasing their profitability, and which are contributing to losses.

Activity-based costinginvolves the following four steps. 1. Identify and classify the major activities and allocate manufacturing overhead costs to the appropriate cost pools. 2. Identify the cost driver that has a strong correlation to the costs in the cost pool. 3.

Example of ABC Versus Traditional Costing SO2 Identify the steps in the development of an activity-based costing system. ABC allocates overhead costs in two stages: Stage 1:Overhead costs are allocated to activity cost pools. Stage 2:The overhead costs allocated to the cost pools is assigned to products using cost drivers.