Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter C, Problem 6DQ
To determine

Introduction:

Activity Based Costing

• Activity Based Costing is a method of cost allocation, whereby costs are assigned to activities performed and cost per unit of activity driver is calculated and assigned to units of activities performed.

• Activity drivers could be cost allocation units such as orders, batches, area occupied etc. Activity based costing favors cost allocation on the actual units of activity carried out as opposed to the standard method of overhead application using a blanket rate.

Cost of Activity = Units of Activity performed x Cost per Activity Driver

To Determine:

Meaning of the term activity cost driver

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