Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 7

Multi-Pool, Multi-Driver Costing Methods

In Brief

Activity-based costing (ABC) is a system that assigns costs to the specific activities performed in a manufacturing or service delivery process. ABC attempts to trace costs more accurately to products or other cost objects than traditional costing methods. The costs of the various activities then become the building blocks used to compile costs for products or other cost objects. Activity-related costs are collected and cost drivers are chosen for each pool. Direct and indirect costs are then assigned to products or services using these activity-based cost pools and cost drivers. The information derived from ABC can be used with activity-based management (ABM) to improve operations and minimize activities that do not add value to the organization. GPK and RCA are costing systems that are similar to ABC. Grenzplankostenrechnung (GPK) and resource consumption accounting (RCA) use an even larger number of cost centers and more detailed analysis of cost behavior to more accurately assign costs to cost objects. Under GPK and RCA, cost accounting is typically integrated with other management information systems using enterprise resource planning (ERP) software.

This Chapter Addresses the Following Questions:

• Q1 What is activity-based costing (ABC)?
• Q2 What are activities, and how are they identified?
• Q3 What process is used ...