X.+Module+17000+Summary+and+Conclusions

@X. Module 17000 Summary and Conclusions

Activity-based costing (ABC) - is a special costing model that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each.

An activity based cost accounting system offers greater product costing accuracy, yet an increased cost.

Predetermined overhead rates are calculated from budgeted overhead that is accumulated from plantwide and departmental pools. These rates use unit level drivers like direct labor hours and machine hours to determine the rate.

There is also under applied and over applied overhead that is determined by taking the difference between actual overhead and applied overhead. This overhead should also reflect the amount of overhead demanded by each product. Also, many overhead activities are unrelated to the units produced, because assigning overhead using unit level drivers may distort product costs. This is why activity based accounting is more accurate picture of the actual overhead consumed by products, they use both unit level and non unit level drivers.