Open AccessActivity Based Costing With Reciprocal Dollar Value Allocation
Author(s) -
Ronald A. Milne
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v13i3.5754
Subject(s) - activity based costing , liberian dollar , cost allocation , total absorption costing , indirect costs , reciprocal , service (business) , process costing , overhead (engineering) , production (economics) , business , value (mathematics) , product (mathematics) , direct cost , target costing , computer science , operations management , operations research , microeconomics , economics , marketing , accounting , finance , mathematics , linguistics , philosophy , geometry , machine learning , operating system
The general model of Activity Based Costing (ABC) allocates indirect costs to products using a two-state procedure which first assigns overhead costs to homogeneous cost pools and then assigns those costs directly to products based on the products use of activities. This procedure does not consider cross-servicing between service departments or activity centers, but rather uses the direct method of cost allocation. This paper presents Activity Based Costing with Reciprocal Dollar Value Allocation (ABC-RDVA) as one approach to using ABC in an environment where production service departments experience ea substantial level of cross-servicing, and use of the direct method would distort product costs.