Question

Que. No. 32
In activity based costing, costs are accumulated by activity using:
A) Cost pools
B) Cost drivers
C) Cost objects
D) Cost benefit analysis

Answer 1

Answer:

To allocate the costs, divide the total cost in each cost pool by the total amount of activity in the activity driver, to establish the cost per unit of activity. Then allocate the cost per unit to the cost objects, based on their use of the activity driver.

Answer 2

The costs are accumulated by cost drivers.

• It represents an allocation basis  and is sometimes also known as an activity driver.
• Setup of machine, maintenance requests, used electricity, purchase and production orders, quality checks, etc are all its examples.
• To get the cost per unit of activity, the total expenses in each cost store is divided by the total amount of activity in the activity driver.
• The cost per unit is then assigned to the cost objects depending on their activity driver use.