ACCA PM Syllabus B. Specialist Cost And Management Accounting Techniques - Calculating costs per driver and per unit - Notes ^{3 / 4}

There are 5 main steps in establishing and applying ABC:

1. Identify activities that consume resources and incur overhead costs.

2. Allocate overhead costs to the activities that incur them.

3. Determine the cost driver for each activity or cost pool. 

   Each group of costs which are influenced by a particular cost driver is referred to as a 'cost pool'.

4. Collect data about actual activity for the cost driver in each cost pool

5. Calculate the overhead cost of products or services.

   This is done by calculating an overhead cost per unit of the cost driver. 

   Overhead costs are then charged to products or services on the basis of activities used for each product or service.

The following example looks at the different activities within a company, their cost and their cost driver.

The cost per driver is found by dividing the total cost of the activity by the quantity of the cost drivers.

Overhead costs are then charged to products or services on the basis of activities used for each product or service.