1.
what is activity based costing ?
Solution
Activity based costing is a method of costing under which overheads are allocated to
departments on the basis of predetermined cost drivers . For example setup cost allocated on the
basis of number of setups , manufacturing cost allocated on the basis of machine hours , rent
allocated on the basis of floor area used by the department . Under this method a rate is
calculated using the cost driver and same is allocated to the respective department on the basis of
avialbility of the cost driver that is used to calculate the rate . Under this method total overhead is
divided by the total cost driver in the company and the rate that we get is multiplied with the cost
driver allocated to respective department to find the share of overhead of that respective
department