![]() Traditional absorption costing tends to focus on volume-related drivers, such as labour hours, while activity-based costing also uses transaction-based drivers, such as number of orders received. This provides the business with better information to make value-based and therefore more effective decisions.ĪBC focuses attention on cost drivers, the activities that cause costs to increase. ![]() It can be considered as the modern alternative to absorption costing, allowing managers to better understand product and customer net profitability. ![]() The latter use cost drivers to attach activity costs to outputs.ĪBC was first defined in the late 1980s by Kaplan and Bruns. Resources are assigned to activities and activities to cost objects. CIMA Official Terminology describes activity-based costing as an approach to the costing and monitoring of activities, which involves tracing resource consumption and costing final outputs.
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