UGC NET COMMERCE June 2019 Q43
- Option : C
- Explanation : Activity Based Costing refers to an approach to the costing and monitoring of activities, which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects, based on consumption estimates. The latter utilise Cost Drivers to attach activity costs to outputs.
Activity Based Costing is a technique which involves identification of costs with each cost driving activity and making it as the basis of apportionment of costs over different cost objects/jobs/products/customers or services. Absorbing Overheads into the cost of product or service under Activity Based Costing involves the following steps:
∎ Identification of various activities within the organisation.
∎ Estimation of the cost of each activity.
∎ Apportionment of cost of support activities across primary activities on suitable basis.
∎ Determination of Activity Cost Drivers for each activity or Cost Pool.
∎ Calculation of Activity Cost Driver Rate.
∎ Assigning of Overheads to cost objects on the basis of Activity Cost Driver Rate.
