Answer
Activity-based costing is the method of costing used to calculate the cost of the product based on their activities rather than other bases like original costing.
ABC generally superior
1. Differing product lines
2. Product lines are very diverse and require different overhead services
3. Overhead costs are high and represent a large portion of total costs
4. A manufacturing process change has occurred due to automation improvements that represent a shift from labor intensive to resource intensive
5. The data produced by the existing system is not useful to managers
Work Step by Step
Under this method overhead cost of activity is identified and assigned to the units based on their number of activities. This method can be helpful to calculate the accurate cost of the product.
