ABC (Activity Based Costing) is a refining costing system that traces costs to products and services using cost pools and cost drivers. It involves identifying and classifying activities, estimating activity costs, calculating cost driver rates, and assigning costs. ABC uses a five level hierarchy of units, batches, products, customers, and facilities. Successful implementation requires clear objectives, top management support, cross-functional teamwork, learning from others' experiences, regular communication, and sufficient data analysis time.
ABC (Activity Based Costing) is a refining costing system that traces costs to products and services using cost pools and cost drivers. It involves identifying and classifying activities, estimating activity costs, calculating cost driver rates, and assigning costs. ABC uses a five level hierarchy of units, batches, products, customers, and facilities. Successful implementation requires clear objectives, top management support, cross-functional teamwork, learning from others' experiences, regular communication, and sufficient data analysis time.
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ABC (Activity Based Costing) is a refining costing system that traces costs to products and services using cost pools and cost drivers. It involves identifying and classifying activities, estimating activity costs, calculating cost driver rates, and assigning costs. ABC uses a five level hierarchy of units, batches, products, customers, and facilities. Successful implementation requires clear objectives, top management support, cross-functional teamwork, learning from others' experiences, regular communication, and sufficient data analysis time.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Introduction • Types of Cost System – Costs and Benefits • Refining Traditional Costing System -Tracing to Products/Services - Cost Pools - Cost allocation base ABC Methodology • Usage by Companies • Purpose of usage • Steps -Identify and Classify activities -Estimate the cost of activities -Calculate cost driver rate -Assign activity costs to products/services Five Level Hierarchy • Classification objectives • Five level hierarchy Unit Level Batch Level Product Level Customer Level Facility Level Methods for Identification and Classification • Top Down • Participative • Recycling • Product Profitability • Customer Profitability Requirements for Successful Implementation • Objectives are clear and tangible • Top Management support • Cross functional management team have project management skills • The team learns from other companies’ experience • Communication is regular and honest • Sufficient time is allowed to gather and analyze data Others • Estimation of Costs of New products • ABC in Service Industry • Costs and Benefits of using ABC • Need for Choosing ABC red flags -Significant Indirect Costs -Complex Goods and services -Standard High Volume vs Complex Low volume -Belief that costs are not distributed properly -Loses bids when quoting low and wins despite higher quoting -No changes in costing system despite major changes in operations