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ng system does not serve effective purposes of product costing and pricing decisions. Activity based costing is a method of cost attribution to cost units on the basis of benefits received from indirect activities. Their performance of particular activities and demands made by these activities on the quantity of resources of organization are linked together so that the cost of product is arrived as per the quantum of actual activities performed to produce a product or service.

Activity Based Costing may be defined as a technique which involves identification of costs with each cost driving activity and making it as basis for absorption of costs over different products or jobs.

CHARACTERSTICS OF ABC
The characteristics of activity based costing can be summarized as follows:

It increases the number of costs pools used to accumulate overhead costs. The number of pools depends upon the cost driving activities. Thus, instead of accumulating overhead costs-in a single company-wise pool or departmental pools, the costs are accumulated by activities.

It charges overhead costs to different jobs or products in proportion to the cost driving activities in place of a blanket rate based on direct labor costs or direct hours or machine hours.

It improves the traceability of the overhead costs which results in more accurate unit cost data for management.

Identification of cost during activities and their causes not only help in computation of more accurate cost of a product or a job but also eliminate non-value added activities. The elimination of non-value added activities would drive down the cost of the product. This is in fact the essence of the activity based costing.

参与美国广播公司的元素——ELEMENTS INVOLVED IN ABC

Activity

Activity cost centre

Cost drivers

Process

Cost objects

Non value added activities

Activity based costing is very useful as it involves a deep evaluation of the product and helps scrutinizing the product, the following are the steps involved in activity based costing:

Evaluation of prevalent costing system

Identifying activities

Selection of cost pools

Determining cost pools

Assigning cost pools

Determine activity hierarchies

A- stands for the most used products

B- stands for the products used averagely

C- Stands for the products which are used the least.

Identifying outputs

Selecting suitable cost drivers

Computing cost drivers rates

Identifying cost to products

Test runs

基于活动的成本核算的使用——USES OF ACTIVITY BASED COSTING

Focus on cost: focus on where the cost originates i.e. the causes of the costs.

Accuracy: accurate product cost due to understanding of the cost behavior.

Only value added activities: identifies source of non-value added activity or wasted efforts and thus eliminates them.

Strategic information: strategic cost information of which long term profitability decision for a product can be taken.

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