While GAAP requires treating selling and administrative expenses as period expen
ID: 2376268 • Letter: W
Question
While GAAP requires treating selling and administrative expenses as period expenses and it requires assigning all manufacturing costs to products, ABC systems can assign selling and administrative expenses to products and they can exclude manufacturing costs from product costs where appropriate
All, ABC uses cost pools that are created to correspond to the activities performed in an organization that cause the consumption of overhead resources.
What is a cost pool? And what are some examples of cost pools that might be created?
Explanation / Answer
as per managerial accounting,cost pool is a set of costs which are incurred when certain operations are performed within the organization. By accounting for all of the costs incurred in a specific activity with a pool, it is simpler to assign those costs to products and get an accurate estimate of production costs. Activity cost pool consists of all the costs required to perform a task such as production.
The best example of where activity costs are tracked and studied is in manufacturing. Given a plant which produces many different products, financial managers are faced with the problem of how to accurately assign production costs to each product. Using activity-based costing is a popular method for assigning costs since it is a good compromise between efficiency and accuracy. Assigning costs accurately is important to determine the profitability of products and subsequently, to make rational production decisions.
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