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Classification of Activities


Under the production process, activities are identified and classified into different categories or segments. Basically activities are classified into the following four activity categories. 

(i)                 Unit level activities

(ii)               Batch level activities

(iii)             Product level activities

(iv)              Facility level activities



The following are the important benefits of implementing activity based costing: 

(i)                 Activity Based Costing provides valuable information to the management to identify the areas of cost reduction. If a company’s financial position is not satisfactory, it advises the management to go for lay off measures.

(ii)               Now-a-days non-manufacturing costs play a prominent role in the constituent of total cost. Activity Based Costing provides appropriate guidance for the allocation of non-manufacturing cost.

(iii)             Activity Based Costing provides accurate cost information which is essential for most of the recent productivity approaches. With the help of these activities overall performance of the organisation will be improved.

(iv)              It assists the management to formulate an effective pricing policy.

(v)                Activity Based Costing helps the manager to take decisions whether he should get the activity done within the firm or sub contract the same to an outside agency.

With the help of the Activity Based Costing, cost of each activity is to be determined accurately. It enables the manager to evaluate the performance of transferred and transference departments.