From the course: Activity-Based Costing
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
Define activity drivers
- Okay, let's remember that ABC is a method of allocating overhead costs to cost objects, say, for example, a company's products or services. We achieve this by defining something called a cost or activity driver, which pretty much tells us what drives the overhead costs. But, before we do this, we need to make sure that we have completed the first two steps of ABC. Step 1 being, what are the overhead pools or inputs of the business? And Step 2, what are we actually trying to allocate costs to? As you can see in this chart, activity drivers provide the critical link between these two steps. Think of Step 3 as, say, the missing piece of the ABC jigsaw puzzle. It's also the most challenging part. So, how about we take the time to understand it a little further using a case study? Let's assume we're performing an ABC for a government agency that oversees transport registration. The first step of ABC asks us to source and analyze the business' overheads. Let's say we've already completed…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.