activity cost driver for production scheduling

Therefore, using direct labour as a primary apportioning device can cause significant costing distortions and poor strategic planning. The increased technology and automation has reduced the direct labour substantially, leaving indirect activities as a far more significant cost factor. This proved adequate when the overhead costs of indirect activities was a small percentage compared to direct labour consumption in actual making of products. The conventional cost systems use direct labour consumption as the primary means of apportioning overhead. Traditional cost accounting over the years proved their inability and inadequacy to support management decision in a complex business environment since they are aimed at allocation of overhead to total cost on the basis of consistency rather than relevance. These normal methods of apportionment have some bottlenecks which tend to misinterpret regarding proration of common costs of different functions added to the product cost.

The basis of apportionment of overheads may be based on machine hours, labour hours, direct costs, input, output, etc. The direct costs will be in proportion to the volume of production and the indirect costs like production, administration, marketing and distribution overheads etc., are apportioned depending upon the method used and absorbed to the individual product. Traditional cost accounting focused on product costing by tracing direct costs to the product and indirect costs are allocated through cost centres. The Cost Accounting includes collecting, classifying, processing, analyzing and reporting of information to managers in their planning and control of activities and information system to be developed to help in decision making within the firm. This book includes several illustrations & diagrams, practical problems and their solutions, chapter-wise PPTs, and students' & teachers' manuals. It is a student-oriented book with a simple, systematic and comprehensive explanation of concepts. Activity Based Information and Decision MakingĬheck out of Taxmann's Cost & Management Accounting by Ravi M.Difficulties in Adoption of ABC in Service Organization.Distinction between Value Added and Non-Value Added Activities.Reasons for Emergence of Activity Based Cost System (ABC).Conventional Cost System and Its Inadequacies.Activity Based Management Learning ObjectivesĪfter studying this chapter you are able to understand: Definition and Meaning of Activity Based Costing (ABC)Ĩ.

Activity cost driver for production scheduling