Activity-Based Costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.
A production overhead absorption rate used uniformly across a factory, often serving as an alternative to calculating a rate for each individual cost centre.
A cost pool is an accounting term referring to a grouping of individual costs typically by department or service center. These groupings are used to allocate and better manage indirect costs.
Overhead absorption, also known as overhead allocation, involves distributing indirect costs to different cost units or products. It's a crucial part of cost accounting, ensuring all production costs are appropriately assigned.
An overhead absorption rate (OAR) is a method used in cost accounting to allocate overhead costs to products or services based on a predefined absorption basis.
Traditional costing systems are methods used to allocate indirect costs (overheads) to products, but they may not offer accurate product cost information due to their arbitrary allocation methods. These systems have strengths such as simplicity and cost-efficiency, but weaknesses include lack of precision in contemporary multiproduct environments.
In cost accounting, the situation where an insufficient amount of factory overhead was charged to the products manufactured.
Expenditure incurred by an organization expressed as a rate per unit of production or sales. While the unit cost is fundamental for understanding profitability, it can be challenging to make valid comparisons between organizations due to arbitrary allocation of fixed overhead costs.
The unit standard production cost is the cost per unit of production, incorporating all standard overheads, direct labor, and direct materials, used to measure efficiency and control costs in manufacturing.
