Posted in Operations and Supply Chain Terms, Total Reads: 2769
Definition: Transaction based Costing
It is done by classifying certain overhead activities into cost pools . Then individual drivers are assigned and proportion of resources consumed are used in calculating the total cost. Since labour hours which was used as a standard cost driver for all the activities now comprises of just 5-10 % of costs after mechanization . It becomes all the more in assigning proper drivers since labour hours are not related to the overheads incurred . Transaction based costing becomes even more important if the drivers are not quantifiable. It also helps in identifying the products or services which are consuming the higher costs.