A business calculates a predetermined overhead rate based on estimated overhead and activity levels in order to be able to apply overhead to its product costs.
Last modified January 17th, 2020
Tag: Activity based costing
Activity Based Costing
Activity based costing ABC, is an alternative approach to the traditional method of allocating overhead costs to products.
Traditional costing allocates overhead to a product using an arbitrary method such as for example, direct labor hours.
Activity based costing first analyzes the overhead into activities and then allocates the overhead to the product based on how much of that activity the product used.
Last modified January 8th, 2020