In Both Activity-Based and Time-Driven Activity-Based Systems We Calculate Cost-Driver

question 131

Essay

In both activity-based and time-driven activity-based systems we calculate cost-driver rates for support activities (e.g., the cost to ship an item or the cost to process a customer order) and it is asserted that these rates are best determined by dividing budgeted resource costs (for a given cost pool) by the practical capacity of resources supplied.
Required:
1.What is the primary advantage of using practical capacity as the volume level for determining cost allocation rates in an ABC or TDABC system?
2.What is the appropriate accounting treatment for unused capacity costs for a given accounting period?

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Definitions:

Low-Income Earners

Individuals who receive earnings that are significantly lower than the average for their community or country, often leading to financial struggles and limited access to resources.

High-Income Earners

Individuals or households that earn a significantly higher income than the average or median for a particular region or society.

Lobbies

Groups of people or organizations that seek to influence political decisions and policies, typically by engaging with legislators or members of government.

Civil Society

Civil society refers to the "third sector" of society, separate from government and business, including NGOs, NPOs, and other voluntary groups that serve as a buffer between the individual and the state.