COST ALLOCATION UNDER ABC

COST ALLOCATION UNDER ABC

• Under activity based cost allocation overheads are attributed to products on an activity base. Traditionally, overhead costs are grouped together under cost centre and then absorbed into product costs on some basis such as direct labour hours.
•  Activity based costing identifies the activities which cause cost to be incurred and searches for fundamental cost drivers of these activities. 
• Once the activities and there cost drivers have been identified this information can be used to assign overheads to cost objects (e.g. products) which have actually caused cost to be incurred.