Activity based costing (ABC) systems

Activity based costing (ABC) systems look at the underlying activities that drive costs within organizations and use these to assign costs. The use of ABC in organizations presents a unique way to reduce overall costs and better track the costs that arise within the overall process.

Consider these problems related to cost accounting and in a 1-2 page Word document, address the following points. Be sure to proofread your work prior to submitting to the drop box.

Describe the three guidelines for costing system refinement.

Explain what an activity based approach to designing a costing system would entail and contain.

Describe the four levels of cost hierarchy. Why is it important to classify costs into each of the hierarchies?

Explain the main costs and limits to implementing ABC systems.

Why might management worry about over costing or under costing products? What would be the impact to the overall organization if this occurs?

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