Enter the cost pool in total ($) and the cost driver ($) into the Calculator. The calculator will evaluate the Activity-Based Costing.
Activity-Based Costing Formula
ABC = CP / CD
Variables:
- ABC is the Activity-Based Costing ($/$)
- CP is the cost pool in total ($)
- CD is the cost driver ($)
To calculate Activity-Based Costing, divide the cost pool total by the cost driver.
How to Calculate Activity-Based Costing?
The following steps outline how to calculate the Activity-Based Costing.
- First, determine the cost pool in total ($).
- Next, determine the cost driver ($).
- Next, gather the formula from above = ABC = CP / CD.
- Finally, calculate the Activity-Based Costing.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
cost pool in total ($) = 700
cost driver ($) = 3881
FAQs
What is Activity-Based Costing (ABC)?
Activity-Based Costing (ABC) is a method of accounting that identifies and assigns costs to overhead activities and then assigns those costs to products. It is used to better understand where a company is incurring costs and how those costs are related to specific products or services.
Why is Activity-Based Costing important?
Activity-Based Costing provides more accurate cost information. By focusing on the costs of activities, companies can more precisely identify the cost drivers of their products or services. This can lead to better pricing decisions, improved cost control, and enhanced decision-making overall.
What is a cost pool?
A cost pool is a collection of all costs associated with a particular activity. These costs are then allocated to different products or services based on their use of the activity. Cost pools are essential in Activity-Based Costing for grouping similar costs that are to be allocated using a single cost driver.
What is a cost driver?
A cost driver is a factor that causes the cost of an activity to change. In Activity-Based Costing, cost drivers are used to allocate the costs in a cost pool to different products or services based on their consumption or demand for the activity. Identifying the correct cost driver is crucial for accurately assigning costs.
