This Excel template is a useful tool to break-down overhead costs, through the activity based costing approach. Activity-based costing allocates overhead costs based on the different duties that are necessary for the production of the goods and services. It looks at all the potential activities required to produce a product, such as designing products, setting up machinery, and distributing end products, rather than just a single variable. One of the main advantages of using activity-based costing to calculate overhead is that you can easily identify what are the main contributors to your overhead expense. It is also the more precise and common approach companies use to allocate their overhead costs, compared to job-order costing and variance analysis where overhead costs are allocated based on specific cost driver such as machine hours or labor hours.
How to Use This TemplateWhile being a simple Excel template that anyone can use, it is intended for intermediate users who have some basic understanding of accounting topics such as:
Learn More About Activity-Based CostingRead CFI's guide to learn about the definition and use of this type of costing method. This guide covers a detailed example which compares between activity-based approach and labor hours approach to allocating overhead costs.