Learning Objective 04-P4: Allocate overhead costs to service companies using activity-based costing.

 Learning Objective 04-P4: Allocate overhead costs to service companies using activity-based costing.

ABC applies to service providers. In applying ABC, service companies classify costs into one of four activity levels, including unit, batch, service and facility level.

Service companies classify costs by activity level including unit, batch, service, and facility. An example of a service level activity for a hotel is:

multiple choice

    checking in a guest
    preparing food for guests
    scheduling personnel Correct
    cleaning rooms

Explanation

Knowledge Check 01

For a hotel, checking in a guest is a unit level activity; preparing food for guests is a batch level activity; and cleaning rooms is a facility level activity. A service level activity for a hotel is scheduling personnel.

Knowledge Check 01

The first step for a service provider using ABC is:

multiple choice

    identify activities and their budgeted overhead cost Correct
    compute overhead activity rate for each activity
    allocate overhead cost to cost objects

Explanation

Knowledge Check 01

The first step in ABC for a service provider is to identify activities and their budgeted overhead cost. The second step is to compute overhead activity rates for each activity and the third step is to allocate overhead cost to cost objects.