Activity based costing is considered a better method of allocating manufacturing

Question

Activity based costing is considered a better method of allocating manufacturing overhead than the more simplified "plant-wide" overhead allocation method.

1. Name three advantages of activity based costing over plant-wide allocation.

2. Activity based costing does require more work than a plant-wide allocation. Under what circumstances is it worth the extra effort?

3. What is the typically result when activity based costing is adopted, in terms of cost allocation between different products?

Please describe with details.

Explanation / Answer

1. Advantages of Activity Based Costing over the Plant Wide Allocation are.

a. It improves the overall all processes as the processes are looked into depth and the improvement is being done.

b. Waste is identified:

c. This process can be aplied to the whole business very smoothly.

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