Introduction to Characteristics of Activity Based Costing
So, the characteristics of activity relies costing can be shortened as follows:.
1. It raises the number of cost pools used to accumulate overhead costs. The number of pools relies on the cost driving activities. So, in spite of accumulating overhead costs-in a single company-wise pool or departmental pools, the costs are accrued through activities.
2. It charges overhead costs to dissimilar jobs or products in proportion to the cost driving activities instead of a blanket rate relies on direct labour cost or direct hours or machine hours.
3. It enhances the traceability of the overhead costs that results in more precise unit cost data for management.
4. Identification of cost throughout activities and their causes not only assist in calculation of more precise cost of a product or a job but also remove non-value added activities. The elimination of non-value added activities would make down the cost of the product. Actually this is the essence of activity based costing.
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