What is the formula for activity-based costing?

What is the formula for activity-based costing?

The formula for activity-based costing is the cost pool total divided by cost driver, which yields the cost driver rate. The cost driver rate is used in activity-based costing to calculate the amount of overhead and indirect costs related to a particular activity.

What are the steps in activity based method?

Step 1: Identify the products that are the chosen cost objects. Step 2: Identify the direct costs of the products Step 2: Identify the direct costs of the products. Step 3: Select the activities and cost-allocation bases to use for allocating indirect costs to the products for allocating indirect costs to the products.

How do you calculate overhead using activity-based costing?

Divide the setup cost per batch of goods produced by the number of units in a batch to figure out the manufacturing overhead for setup per unit. Divide the overhead cost per machine hour by the number of units produced per machine hour to get the overhead cost for production of each unit.

How do you calculate units of activity?


  1. Depreciable Base = Asset Cost – Salvage Value.
  2. Depreciation per Unit Time = Depreciable Base / Useful Time Units.
  3. Depreciation for Period = Number of Time Units Used in a Period x Depreciation per Unit Time.

What are the four stages of the ABC process?

These stages may be considered in detail:

  • Identifying Activities:
  • Assigning Costs to Activity Cost Centres:
  • Selecting Appropriate Cost Drivers:
  • Assigning the Cost of the Activities to Products:

How do you calculate overhead with ABC?

To calculate the per unit overhead costs under ABC, the costs assigned to each product are divided by the number of units produced.

What is activity-based costing and how does it work?

Activity-based costing (ABC) is a methodology for more precisely allocating overhead costs by assigning them to activities. Once costs are assigned to activities, the costs can be assigned to the cost objects that use those activities. The system can be employed for the targeted reduction of overhead costs.

How is activity-based costing implemented?

Implementation Steps

  1. Step #1: Activity Identification. First, activities must be identified and grouped together in activity pools.
  2. Step #2: Activity Analysis.
  3. Step #3: Assignment of Costs.
  4. Step #4: Calculate Activity Rates.
  5. Step #5: Assign Costs to Cost Objects.
  6. Step #6: Prepare and Distribute Management Reports.

What is an activity based approach to designing a costing system?

An activity-based approach-refines a costing system by focusing on individual activities (events, tasks, or units of work with a specified purpose) as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products or services.