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Chapter 5: Activity-Based Costing (ABC) & Activity-Based ...

Chapter 5: Chapter 5: Activity-Based Costing (ABC)& Activity-Based Management (ABM)H 13 5 -1 Horngren 13eA SIMPLE Costing SYSTEM5-2AN Activity-Based Costing SYSTEM5-3 ABC s 7 StepsStep 1:Identify the products that are thechosen cost :IdentifythedirectcostsoftheproductsStep 2 3:Select theactivities and cost-allocation basesto 4:Identifytheindirect costsassociated with each cost-allocationbase( activity ).allocation base( activity ).Step 5:Compute therate per unitof each cost-allocation base( activity )used to allocate indirect costs to the(y) 6:Compute the indirectcosts allocatedto the 7:Compute thetotal costs of the productsby adding alldirect and indirect costs assigned to the HIERARCHIESIn an ABC system, costs are categorized on the basis of the different types of cost drivers utilized.

AN ACTIVITY-BASED COSTING SYSTEM 5-3 ABC’s 7 Steps Step 1: Identify the products that are the chosen cost objects. Step 2: Identify the direct costs of the products. Step 3: Select the activities and cost-allocation bases to use for allocating indirect costs to the products.

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