Final answer:
The second step in the implementation of Activity Based Costing involves assigning overhead costs to activity cost pools using mathematical models to estimate and normalize costs for comparison.
Step-by-step explanation:
The second step in the implementation of Activity Based Costing (ABC) is the assignment of overhead costs to activity cost pools. This step is crucial as it involves using mathematical models to estimate costs associated with different activities or processes within a business. These mathematical models help in predicting costs of alternative solutions and facilitate the analysis of the financial impact related to science and technique in manufacturing, operation, and maintenance processes.
Once the overhead costs have been estimated using these models, they need to be normalized to allow for an accurate comparison. For example, if a company is evaluating different methods to purify water, the costs associated with each method should be normalized to a standard measure such as cost per thousand gallons. This normalization allows for a direct comparison between methods, enabling the business to make informed decisions about which process or activity is more cost-effective and aligns better with their financial strategy.