In activity-based costing, the number of vendors supplying the materials used to manufacture the product may be used as a cost allocation base to allocate the sourcing and purchasing costs.
In activity-based costing, the units of materials used to manufacture the product may be used as a cost allocation base to allocate the receiving costs and material handling costs.
Activity-based costing identifies the causal relationship between activities and the incurrence of cost, determines the underlying driver of activities, establishes cost pools related to individual drivers, develops costing rates, and applies cost to product on the basis of resources consumed (drivers). Cost allocations in ABC need to be based on activities performed and resources consumed , not on other costs. For example, a reasonable basis for allocating receiving costs would be the number of purchased parts required for each product. If receiving costs were allocated according to variable product costs, then the product that had the most variable product costs would be allocated the most receiving costs. But that product would not necessarily contain the most purchased parts. It might contain only one small, very expensive purchased part. The receiving costs are affected by number of purchased parts received, not by the cost of the purchased parts received.
In activity-based costing, the number of different materials used to manufacture a product may be used as a cost allocation base to allocate the sourcing and purchasing costs as well as the receiving and material handling costs.
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