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lincs
11-04-06, 19:16
Right as I understand it Marginal costing cannot be used to value inventories because fixed costs of production (indirect costs)must be absorbed into products. Thus Absorption costing is used because that DOES trace fixed costs of production into products.

So whats the score with Activity Based Costing? Can that be used for inventory valuation?

Thanks
Adrian

PS any comments appreciated even if unsure, and any links to a formal website much appreciated.
lincs
13-04-06, 17:29
20 views and no a single comment! Does anyone even have a textbook or a suitable website they can point me to?

Its not critical im just facing management accounting exams and might get asked disadvantages/advantages of ABC.

Thanks
Krispi
14-04-06, 10:35
Hi Lincs

ABC costing is the alternative to absorbtion costing. It focuses on the indirect costs such as the overheads of a business.
For each indirect activity the costs are identified and grouped together to form a cost pool and the cause of the cost is identified and is the cost driver.
Both the cost pool and cost driver are used to calculate the cost driver rate for each activity.

The formula is:
Rate = cost pool/cost driver

Then the cost driver rates are used to charge the indirect costs to the unit of output.

I hope this helps as this is all I can remember from activity based costing. There isn't a lot in my books and it has been a while since I looked at this at college. It is one of those things that unless you use it you don't remember it.

Regards
Michelle
TLG
14-04-06, 10:40
I haven't really done anything on costing since I finished my CIMA exams in 1996 so can't answer your question. However, a quick google on Activity Based Costing shows that a lot of service industries use it (police were there several times) and I seem to recall that ABC lends itself better to service type industries than more conventional costing methods.
lincs
14-04-06, 11:54
Sorry guys and gals perhaps I didnt make myself clear. I know loads about ABC, just not whether it can be used to value inventory in financial accounts!