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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

In activity based costing, the correct sequence of the basic steps is:

In ABC, activities are identified first, their costs are collected in activity cost pools, a rate is computed per unit of cost driver, and finally costs are assigned to products according to the driver quantity each consumes. Rates cannot precede the pools.

  1. AIdentify activities, assign costs to activity cost pools, determine cost driver rates, assign costs to productsCorrect
  2. BDetermine product costs, identify activities, set cost driver rates, assign costs to pools
  3. CAssign costs to products, identify cost drivers, group activities, compute pool totals
  4. DCompute cost driver rates, identify activities, assign costs to products, form pools

Explanation

ABC first identifies activities, then collects costs into pools, calculates a rate per unit of cost driver, and finally charges products by their driver consumption. Rates cannot be computed before pools exist.

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