About This Chapter
Activity-Based Costing Overview- Chapter Summary
When it comes to determining the cost of a product or service, there are many other connected costs that must be considered. In this chapter, our instructors will teach you about how these connected costs can be configured through the activity-based costing methodology. To make this complex methodology easier to understand, our instructors have divided the chapter into shorter lessons. Each lesson describes a different aspect of this methodology, allowing you to master the method one piece at a time. Once you complete the entire chapter, you will be able to:
- Describe the seven steps used in activity-based costing
- Identify activity-based drivers and cost pools
- Analyze the methods in which overhead is allocated
- Define the levels of activity in an activity-based costing system
- Examine the limitations and benefits of activity-based costing
- Point out examples of activity-based management (ABM)
- Explain how service industries can utilize activity-based costing
- Assess how the theory of constraints relates to lean manufacturing
1. The Seven Steps of Activity-Based Costing
This lesson will help you understand why activity-based costing is used instead of traditional costing and teach you about the seven steps associated with it.
2. Identifying Activity-Based Cost Pools & Drivers
In this lesson, you'll learn about the usefulness of defining the activities needed in order to make your product. You'll see how activity-based cost helps you calculate a more accurate overhead cost.
3. Allocating Overhead in Activity-Based Costing Systems
In this lesson, you'll learn how you can calculate your overhead by figuring out the cost of each activity you do to make a product. You'll also read about dividing your costs into batch-related costs and per-unit costs.
4. Activity Levels in an Activity-Based Costing System
With ABC, or activity-based costing, we must first identify into which activity category a cost should be placed. In this lesson, we learn about the four general groups associated with ABC: unit-based, batch-based, product-based, and facility-based costs.
5. Benefits & Limitations of Activity-Based Costing
Managers need the best information they can get about product cost so they can accurately determine a product's selling price. In this lesson, you'll learn about activity-based costing (ABC).
6. Activity-Based Management (ABM): Definition & Examples
This lesson explains the concept of activity-based management and how it extends the use of activity-based costing. Learn how this costing method is used as a comprehensive management tool to reduce costs and improve processes and decision-making.
7. Activity-Based Costing & Service Industries
Activity-based costing is common in manufacturing, but can it be applied to service industries too? In this lesson you'll find out what activity-based costing is, how it works in service industries, and some of the benefits and challenges of using it.
8. Lean Manufacturing & the Theory of Constraints
In this lesson, you'll learn about lean manufacturing and the elimination of waste in the world of business. We'll define the term and build a connection to the theory of constraints.
Earning College Credit
Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.
To learn more, visit our Earning Credit Page
Transferring credit to the school of your choice
Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.
Other chapters within the Accounting 303: Cost Accounting course
- Cost Classifications in Accounting
- Costing Methods & Techniques
- Formulas for Cost Accounting
- Standard Costs in Accounting
- Job Order Cost System in Accounting
- Process Cost System in Accounting
- Product & Service Costing
- Budgetary Process
- Cost Behavior Analysis
- Cost-Volume-Profit Analysis Overview
- Cost Estimation
- Service Department & Joint Cost Allocation
- Cost Accounting for Decision Making
- Ethics in Cost Accounting
- Modern Trends in Accounting
- Required Assignments for Accounting 303
- Studying for Accounting 303