MEANING OF TERMS USED IN ABC

MEANING OF TERMS USED IN ABC
(i) Activity – Activity, here, refers to an event that incurs cost.

(ii) A Cost Object–It is an item for which cost measurement is required e.g. a product or a customer.

(iii) A Cost Driver–It is a factor that causes a change in the cost of an activity. There are two categories of cost driver. Example Production runs

· A Resource Cost Driver– It is a measure of the quantity of resources consumed by an activity. It is used to assign the cost of a resource to an activity or cost pool.

· An Activity Cost Driver–It is a measure of the frequency and intensity of demand, placed on activities by cost objects. It is used to assign activity costs to cost ob- jects.

(iv) Cost Pool-It represents a group of various individual cost items. It consists of costs that have same cause effect relationship. Example Machine set-up.