Some managers or readers who are assigned to build up an activity based costing system might be at a loss on how to even embark on this assignment.To do it, please look at the earlier articles on steps, conditions, factors,etc are provided.
In this article, the overview approach is given to implement the activity based costing […]

As managers, we always try to relate the overheads costs by APPORTIONING to the various cost centres.
Remember that activity based costing is basically a ” one-step attribution system” as costs are NOT APPORTIONED between activities-the costs of each activity are RELATED DIRECTLY to products. Cost attribution is the process of relating cost to cost centres […]

In an Activity-based costing system(ABC), the term allocation base is replaced by the term activity measure, and the term cost driver is also used.
The two types of activity measures are :

Transaction driver – a simple count of the number of times that an activity occurs.   This is the least accurate type of activity measure.

Duration driver […]

Before the implementation of ABC system, the following factors need to be considered:
 

It’s implementation needs very strong top management support. Without leadership from top management, some managers may not see any reason to change. Without top management support, the ABC implementation will be seen as unimportant,

The main limitations of ABC are:-

 requires management to estimate costs of activity pools and to identify and measure cost drivers for these pools,

detailed ABC systems are costly to operate and difficult to understand. Many companies are discouraged from using ABC due to the higher cost of identifying multiple activities and applying numerous cost drivers. ABC […]