Presentation on Management

Accounting
 TOPIC ACTIVITY BASED COSTING
(ABC) ANALYSIS
 CP: 202
PRESENTED TO,

MS LURAI RONGMEIPesented by,

ASSISTANT PROF.
Dhruba Debnath (43)
Sec (A).
DBA-SMS

ASSAM UNIVERSITY,SILCAR.
 Introduction
ABC is based on the belief
that activities gives rise
to costs. Therefore , a link
should be made between
activities and products by
assigning costs of
activities to products
based on an individual
products .
 Key areas of ABC
 Product cost differentiation.
 Activities and their cost drivers.
 Identification of non-value added
costs.
•
 Steps to develop ABC
 Identify the main activities perfored.
 Identify the factors which influence
yhe costs.
 Collect accurate data on various
costs.
 Establishing the demands made by the
particular products on activities.
 Trace the activities to products
according to products demands on
each activities.
 Traditional vs ABC
 Lack of cause effect relationship
between the cost allocation bases
and indirect cost pools.
 Many homogeneous cost pools in ABC
for various activities.
 Broad level based allocation of costs
in traditional approach.
 But ABC is a rational way of
allocation based on relative
activities.
•
 Benefits of ABC
 Cost management and downsizing .
 Determination of products service
costs.
 Improvement in performance.
 Product /service pricing.
 Make or buy decision.
 Transfer pricing.
 HOW ABC SUPPORTS
CORPORATE STRATEGY
 Furnishing data to operational and
strategic levels..
 Redesign the products for improving
their quality.
 Change the system of evaluation of
new process .
 Feed back to cost centers.
 Illustration
• A co manufacturing two products and furnishes
the following data for a year.
• Products Actual Total Total no Total no
A output
5000 machine
20000 of
160 of
20 set-ups
• (units) hours purchase
B 60000 120000 384
order 44
•
•
THE ANNUAL OVERHEADS ARE AS UNDER:
Volume of related activity costs Rs 550000
Set-up related costs Rs 820000
Purchase related costs Rs 618000
 Notes
• MHRT=TOTAL ANNUAL OVERHEAD/TOTAL MACHINE HOUR.

=1988000/140000 =14.2
 MHRABC =TAO for volume/TMH

=550000/140000 =3.93
• set-up/total no of set-ups
Cost of one set-up= TCSs
 =820000/64 =12812.5
• Cost of purchase order=( TCs of purchases )/(total
no of purchase order.)
 =618000/544 =1136.03

 SOLUTION
Statement of overhead cost per unit based on ABC
SYSTEM
PROD ANNU TOTA COST COST COST TOTAL COS
UCTS
A AL
5000 L 20000 S78600 S 18176 S 25625 COSTS
516615 T103
(1)
B OUTP
60000 MAC
12000 RELA
47160 RELA
5
43623 RELA
0
56375 7=4+5+6
1471585 PER
24
UT HINE
0 TED
0 TED
5 TED
0 UNI
UNITS HOUR TO TO TO T
(2) S(3) VOLU PURC SET- 8=7/
ME (4) HASE UPS 2
S (5) (6)
 conclusion
• Since we cant control the direct cost of the
product ,but we can control the
overheads .this can only be done when
we have a thorough idea about cost
centres with respect to function or
activity.
• THANK YOU