Activity Based Costing is defined by CIMA, “As an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs.”
The best way to understand this is perhaps by going through the various steps of ABC first which are as follows:
1. Identifying costs – The first and the most important step, it involves identifying the activity for which the costs are meant to allocated or found. It helps in realizing the necessary elements for the process and the cost associated with it.
2. Loading Cost Pools –
(i) Secondary Cost
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With passage of time, its applications has reached to service industry amongst others. From a costing system ABC has evolved into performance measurement solution including process analysis tools. Although a number of alternatives like lean accounting have come up in the past few years due to certain limitations of ABC.
Uses:
• Distribution Cost: Distribution constitutes as a major overhead cost for most companies, ABC analysis helps in finding of unprofitable distribution channels and various costs involved in the others.
• Make or buy: As a result of the detailed cost analysis that can be obtained from ABC for the in-house manufacturing of the product make or buy decisions can be taken
• Pricing: The detailed cost analysis from ABC can be used to understand the minimum cost of the product to price it accordingly. Another aspect with which ABC helps is understanding the necessary overhead costs to be included in the minimum pricing of the product/service.
• Profitability partnerships: It has been observed that certain overheads like relationship costs are abnormally high for some customers, vendors or suppliers. ABC helps is sorting out these unprofitable partnerships to focus on fruitful profitable partnerships with vendors, suppliers and
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ABC traces costs by using resource and activity cost drivers that reveal activities and objects consumption patterns on the basis of a cause and effect relationship. Cost drivers are used to establish a relationship between resources, activities and cost objects. One of the most difficult part in ABC is the identification and selection of these cost drivers. One of the major difficulties that the people in the industry feel is related to data collection, identification of activities and lack of resources. To deal with problem of lack of data three levels of accuracy is
Cost is the allotted budget required to complete the project. Cost includes material, resources, labor and any item within the project which has a cost associated with it. The three constraints are interdependent and a change to one can affect the one or both of the other constraints. If more requirements are added to the scope of the project, then it is likely for the amount of time and cost to increase as well.
A spend analysis evaluates spending to keep costs down. The advantages of a spend analysis is that it contains detailed files on what a company buys, how much they spend, and who they buy from. By conducting a spend analysis the controller can consolidate purchases in order to increase buying volume with a smaller number of preferred suppliers. Although this analysis can be used to reduce cost it does have one disadvantage. Spend analysis do not account for nonfinancial questions behind purchasing decisions.
Usually, budgeting is based on tangible cost of products purchased but during this project the main costing was based on man hours. Even the cost benefit analysis of the project was based on man hours involved in the current implementation versus what it would be with the new system in place. - Formative and Summative Assessment – Quality Assurance was a new concept that I learned is critical to the successful implementation of the project. I was not entirely satisfied with this part of the project because there is always scope for more quality control measures but the project was limited by time and cost. For example, peer reviews of code could have help bring up the quality of the coding practices of developers but there was no time to implement that in this project.
Direct and limited reimbursement plans are different. Direct expense reimbursement plans designate reimbursement of all expenses that are reasonable within the sales effort of salespeople (Johnston & Marshall, 2009). Limited expense reimbursement plans allow for a pre-set limit of expenses (Johnston & Marshall, 2009). The pre-set limit of expenses can be reimbursed for specific expense occasions or provided as a one time expense budget payment. The type of reimbursement plan that would work best for the MedTech Pharmaceuticals company would depend upon the goals of the company.
These costs come in the form of lower prices of products as well as shipping, sourcing of supplies and manufacture remain with the vendor (Smith, Palazzo, & Bhattacharya,
1. After reviewing the reading on NP reimbursement--what do you think are the three most important concepts an NP should be familiar with to maximize their value? Why--provide rationale and justification. Overhead cost According to Waxman (2013) overhead cost is defined as the price of doing business.
Introduction Cost-benefit analysis has been a prolonged topic of debate since its introduction by Gary Becker. Becker tried to explain each and every action by human beings using his analysis. However, oppositions to this standpoint arrived immediately. Therefore, we can say that it became a battle of giants with respected intellectuals on each side (Sen 2000, 931). Since this debate cannot be settled even by some great intellectuals, my intentions in writing this paper is nowhere near providing an answer to the reader regarding who the winner is.
By identifying the CSFs, the company may create a common point of reference to help guide and measure the success of a business. Cost:- Companies constantly face pressure to reduce the cost of the products and services they sell. The company must know the cost of producing the good and what consumers are willing to pay for it. Managers can calculate a target cost for the product by subtracting the operating income per unit of the product, that the company wishes to earn from the target price. In order to achieve the target cost, managers may eliminate some activities such as reduce costs from research and development to customer service.
• Finance: Depending on how much the customised solution costs The benefits of each of the products/services to the user
Abstract The Wilkerson Company started facing declination in profits due to the price cutting on their pumps. On the contrary, while the price pumps were decreasing to record numbers, the flow controllers, which controlled the rate and direction flow of chemicals, could increase its prices without significant loss or any competitive response. Wilkerson, his controller, and manufacturing manager developed an activity-based cost model (ABC) to better comprehend the various demands that each product line makes on the organization 's indirect and support resources. Exhibit 1 showed us our operating results, Exhibit 2 showed us our product profitability analysis, Exhibit 3 displayed our product data, and Exhibit 4 was a compilation of the monthly
Second would be the material cost. Even though a university provides more services than actual goods, the material cost would be equipment and supplies for the university and students to operate. Lastly, the third phase would be miscellaneous or any other cost that is not labor or material. One great example that would fall under this category would be
The main aim of partnership working is to improve the experience and outcomes of people who use services and this is achieved by minimising organisational barriers between different services. Working in partnerships with others enables me to perform tasks that would be impossible alone. There are many people I can benefit from working in partnership with such as colleagues, as well as service users and their family members, doctors, nurses, occupational therapists, social workers and various other healthcare professionals. These people may be able to help give me useful information and help support me in my job by supporting me with any problems I might have. It is important to form working partnerships in order to promote effective communication
Abby prefers to allocate indirect cost using activity-based costing for these orders, but recognizes that not all costs are driven by volume of output. Abby prepares a
ABC can be used just as easily in service costing as in product
In terms of controlling, the management of Marks and Spencer has frequent reporting of expenditures with costs to provide a form of feedback. The reactions of managers to such type of data rely on the expectations or the formal budget or planned targets. The management believes in collecting and assigning cost data that is being shifted away from control. There is a recognition related to the repetitive exercise of planning and re-planning for creating a full time job for accountants. The assessment and evaluation of cost data in the aspects of launching new product by Marks and Spencer is about gaining insights and learning ways for achieving the goals of organisation in most effective manner.