Activity Based Costing
Definition: ?
activities drives cost
products demand activites
"activities go up cost go up''
Advantages
Subtopic
better u/std what drives ohd costs
better costing of pdt with complex prodn process
more ohd cost beyond factory floor
The method
Step 1Major activity
example:purchasing acti, prodn etc
Step 2: Cost drivers ( factors which determine the cost of activity)
Step3: For each cost driver cost pools
Step 4: CHARGE to cost units based on their usage of the activity
Disadvantages
only measurable cost drives can be used
cost benefits of accuracy
problematic implementn
Subtopic
some item may use other means of appn like rent,depn etc
a cost sriver may/may not explain all cost in c/pool
Why ABC
Wider range of products
overhead constitute large part of cost than dl dm
many cost are driven by non volume related act.complexity/range
high volume product will tend to bear higher overheads in trad.
Implication
Decision making
Pricing
Promotion
Discontinuation
Product change