Final answer:
The first step in implementing activity-based costing is to define the firm's cost structure by calculating total, average variable, average total, and marginal costs to establish a base for cost comparison and mathematical models.
Step-by-step explanation:
Step 1 in Implementing Activity Based Costing
The first step in implementing activity-based costing (ABC) is to determine the cost structure of the firm. This involves calculating the firm's total fixed costs and variable costs. Once these costs are delineated, the firm must then calculate the total cost, average variable cost, average total cost, and marginal cost using prescribed formulas. These calculations are crucial for understanding how costs are distributed across various products or services and for establishing activity cost pools and activity measures. The cost calculations are presented in detail in Table 8.8 of the Production, Costs, and Industry Structure chapter. This step is the foundation for developing mathematical models to estimate costs and analyze the cost of implementing various alternatives, ultimately allowing for effective comparison among options.
Step 1 in implementing Activity Based Costing (ABC) involves defining the activities, activity cost pools, and activity measures. Activities refer to the tasks and processes carried out by a company, while activity cost pools are the categories that group similar activities together. Activity measures are the metrics used to quantify the level of activity for each cost pool.