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Definition: Activity based Costing (Kaplan)
Activity based costing is helpful in determining the unused capacity in the system. It also accounts separately forthe complex processes since more resources are allocated in those processes. It is usually used in complex layouts unlike in a simple plant or a department. It helps in matching the costing with the hours consumed .
Calculate the driver rate ie rate for doing an activity .Its unit is in Rs /min .It is estimated taking into account the utilization factor .
Step 2 :
The overall cost for the unit is hence estimated . The individual task times are multiplied with the quantities and the cumulative time is calculated . The individual cost is calculated using the (driver * individual time ). The cumulative cost is calculated and compared with the allocated cost.
Order time = 30 mins , order processing time =40 mins , order checking time =50 mins .
24 (cost per order recd)
Total cost = 291200
The total allocated mins for all the activities is 4,000,00
Assuming the value of driver to be 0.8 we get 3,20,000 as the total allocated cost