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 – measures the amount of time needed to perform an
activity. This is more accurate than a transaction driver, but it takes more effort to record.
The following are the examples of activity cost pools and corresponding activity measures:
| Activity Cost Pool | Definition | Activity Measures | |
| 1 | Customer order |
Assign all costs of resources that are consumed by taking and processing customer orders |
Number of customer orders |
| 2 | Product Designs |
Assign all costs of resources consumed by designing products |
Number of product design |
| 3 | Order Size |
Assign all costs of resources consumed as a consequence of the number of units product |
Machine-hours |
| 4 | Customer Relations |
Assign all costs associated with maintaining relations with customers |
No of active customers |
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four, Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.
Also author to another very popular free educational accounting cum finance blog: http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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