ACTIVITY BASED

COSTING
GROUP MEMBER:
HANA RESA ANANDA 141521019
R A H M A S H E L L A R E S YA 1 4 1 5 2 1 5 5 3

CASE
THORN LIGHTING LIMITED
Planning

Controlli
ng

Decision
Making

Increasing several
euros
Linked UK
commercial &
manufacture
business
To establish the
size of market

Investigate market
requirement
Gain competitive
intellegence

Product variation
Products
Subtitution

WHAT IS ABC ?
An overhead cost allocation system that
allocates overhead to multiple activity cost
pools and assigns the activity cost pools to
products or services by means of cost drivers
that represent the activities used.

WHAT GAVE RISE TO ABC?

In the early 1980s:

Direct labor becoming a smaller percentage of total

manufacturing cost

Increasing pressures on product costing

products produced several types

using of modern technology in the manufacture of the

product causes the proportion of overhead costs in
product cost becomes dominant

Basics of A B C : How?
Primary
activities
Cost pools
are groups
or
categories of
individual
expense
items
Form cost pools

Identify
activities

Primary
Secondary

Assigning
costs to
activities

Define
activity cost
drivers
An activity
driver is a
quantitativ
e measure
of the
output of
an activity.

Calculate
cost

U Cost Hierarchies
ni
tle
ve
l
Batchco
level costs
st
Product-sustaining
s
costs
Facility-sustaining costs

ABC systems
commonly use a
four-part cost
hierarchy to
identify
cost-allocation
bases:

BENEFITS

LIMITATIONS

more detailed measures

of costs than functional

based costing system
more accurate product
costs for marketing
decisions

pricing; products to keep;

products to discontinue
better information to

production managers
costs of each activity
identifies previously
unknown cost drivers

The main limitations of ABC are the measurements

necessary to implement the system.

ABC systems require management to estimate costs of

activity pools and to identify and measure cost drivers for
these pools.

Activity-cost rates also need to be updated regularly.

Very detailed ABC systems are costly to operate and

difficult to understand.

Using
Consumptio
n Ratios

Reducing The
size &
compleaxity of
ABC

Different

Traditio
nal

Traditional allocation method

ABC

Activity-based allocation method

PRODUCT
COST
10