Example Concept How to Use Explanation

The income statement will explain part of the change in the owner’s or stockholders’ equity during the time interval between two balance sheets. Examples of assets include cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount…

Absorption Costing Formula: Accounting Explained

Absorption costing considers all fixed overhead as part of a product’s cost and assigns it to the product. Absorption costing leads to more accurate product costs than variable costing, which only includes direct costs. However, absorption costing depends heavily on cost estimates and output assumptions. These costs are directly traceable to a specific product and…

What Is Activity-Based Costing ABC? Explanation & Example

The implementation of an activity-based costing system is a pre-requisite for every program, including re-engineering as well as the improvement of business processes (see article). Additionally, many businesses use ABC data to fulfill the measurement requirements of a balanced scorecard (see article). For example, the labor and resources required to manufacture a mass-produced industrial robot…

Activity-Based Costing Calculation Steps and Example

This complexity can make it hard for small businesses with limited staff and resources. Performing detailed activity analysis and assigning costs requires time, effort, and expertise. This example demonstrates how the activity-based costing process traces overhead to the products based on activities rather than arbitrarily spreading costs. According to ABC, an activity can also be…