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a budgeting method that assigns costs first to activities and then to the projects based on each project's use of resources. Activity Based Costing (ABC)

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The budgeting technique known as "activity-based costing" (ABC) allocates costs first on activities and then projects based on how much of each resource each project uses.

How to do activity-based costing calculation?

  • List all the steps needed to produce the product.
  • Organize all activities into cost pools that comprise all of the specific costs associated with a particular activity, such as manufacturing. Determine the overall cost of each and every cost pool.
  • Assign cost drivers for each activity in the cost pool, such as units or hours or units.
  • To calculate the cost driver rate, divide each cost pool's total overhead by all of the cost drivers.
  • Then, multiply the cost driver rate with the total number of cost drivers.

For example, think about Company ABC, whose annual electricity bill is $50,000. The amount of labor hours directly affects the electricity bill. The cost driver in this scenario is the 2,500 labor hours that were put in for the year.

Cost driver rate = Annual electricity cost/ labor hours in a year

= $50,000 / 2500

= $20

The business utilizes electricity over 10 hours to produce Product XYZ.

The product's overhead costs = Cost driver rate x electricity used to produce product

= $20 x 10.

= $200

To know more about Activity-Based Costing, check out:

brainly.com/question/6654166

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