ABC

Activity Based Costing

 Introduction
• Choice of Cost System – Costs and
Benefits
• Refining Traditional Costing System
-Tracing to Products/Services
- Cost Pools
- Cost allocation base
• ABC Costing method
 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