in this powerpoint ABC costing system is highly elaborated

1. Team Assignment Part 2
Learning Team D (Jihan Richardson, Jonah Targosz, Samantha Evanson, Shanelle Fisher)
ACC/349
July 8, 2018
Derrick Flowers

2. Terminology used in an ABC costing system
• ABC (activity based costing) is an accounting method that is used to trace & assign costs to the overhead activities
Through this method overhead, indirect costs end up being assigned to products.
• Estimated overhead costs relating to production are usually assigned to products as per a given cost-driver rate A
cost-driver is simply a factor that incurs cost and is usually used to allocate indirect as well as variable cost to the
output or activities of production e.g. purchase orders, machine setups, quality inspections, maintenance requests, etc.
• Overhead costs are costs incurred during production but are not directly related to the manufacturing process of a given
product.

3. ABC costing & how it differs from traditional costing
• Activity based costing (ABC) assigns costs to activities regarded as real causes of overhead first, and then assigns these costs of activities to products that are actually
demanding these activities (Srinivasan, 2008).
• Unlike ABC costing that classifies activities unrelated to the number of units produced in five levels that include batch-level activity, customer-level activity, unit-level activity,
organization-sustaining activity, as well as product-level activity, the traditional costing usually depends on volume count e.g. direct labor hours or machine hours to be able to
allocate overhead costs to products.
• Secondly, by providing a precise breakdown of the indirect costs, the ABC costing method ends up providing more accurate results than the traditional costing system.
• Despite the many advantages associated with ABC costing, it tends to be more costly as well as complex in comparison to the traditional costing
system.
• However in this case, ABC costing is the best method for Jeemp Farms since the decision arrived at thereafter will have huge implications on the
company’s profitability.

4. Reference
• Jelić, M., Aničić, J., Đurović, J., & Radojičić, S. (2014). ABC
COSTING METHOD. FBIM Transactions, 2(1), 91-100. doi:
10.12709/fbim.02.02.01.09
• Srinivasan, P. (2008). Activity based costing. Hyderabad, India: Icfai
University Press.