Question

The first step in ABC is:

a. manufacturing overhead rate.
b. to identify and classify activities.
c. to select a cost driver for each activity pool.
d. to form activity pools.

Answer 1

The first step in Activity-Based Costing is to identify and classify activities, which is the foundation for developing a clear understanding of a business's cost structure and preparing cost-related calculations and tables. Option B is correct.

Step-by-step explanation:

The first step in Activity-Based Costing (ABC) is to identify and classify activities. This approach involves understanding how the business operates and what activities are necessary to produce the products or services that it offers.

Once activities are identified, they can be categorized into activity pools, which help to associate costs with those activities more accurately. It is crucial to select relevant cost drivers for each activity pool to allocate costs effectively. These steps are fundamental in determining a company's cost structure, calculating total cost, average variable cost, average total cost, and marginal cost.

This process is critical because it helps in understanding the relationship between production and costs, such as fixed, variable, and marginal costs, and preparing a table that showcases the company's output, total cost, marginal cost, average cost, variable cost, and average variable cost.