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:

Function

A connection between a collection of inputs and a group of allowable outputs where each input is tied to only one output.

Graph

A diagram showing the relation between variable quantities, typically of two variables measured along a pair of axes at right angles.

Function

An association involving a series of inputs and an approved set of outputs, where every input corresponds to a singular output.

Standard Form

In mathematics, it often refers to a way of writing numbers using digits, or a specific format for linear equations, depending on the context.