ABC-(Activity Based Costing) a system designed by a company to assign costs to products by their use of activities-which company performs to make and/or deliver their product.
Steps involved with Activity Based Cost Management-
Step one-Activity analysis which is done to analyze key activities and their costs.
There are (6) steps:
1. Identify customer wants or expectations from their products or services, including price, and quality.
2. Chart the company’s activities for completing the product beginning to end.
3. For each of its activities, develop activity-based costing data based on the resources used in each activity.
4. Classification of all activities as value-added or non-value-added.
5. For each activity, compare the costs with the value that the customers assign to it. …show more content…
Jack is actually costing the company more money due to his number of orders/shipments where Jill is actually a lower cost customer.
Using and Supply Resources-
Resources used-measured by multiplying cost driver rate by cost driver volume.
Resources supplied-expenditures or amounts spent on an activity.
Unused resource capacity-difference between used and supplied resources
Managers need to have a good handle on their costs. The use of the Activity Based Income Statement is a good tool to look at the use/non-use of resources. To have this information would benefit the manager in effectively using the company resources.
When designing a cost management system to assign capacity costs there are a few things that need to be known:
1) Actual activity-actual volume for the period needs to be estimated
2) Theoretical capacity-amount of production possible under ideal conditions- no maintenance time, breakdowns, or absenteeism. Hard to determine.
For managers to acquire the cost of unused capacity they need to define what is capacity and what level to use as the allocation base. He has several
Steps involved with Activity Based Cost Management-
Step one-Activity analysis which is done to analyze key activities and their costs.
There are (6) steps:
1. Identify customer wants or expectations from their products or services, including price, and quality.
2. Chart the company’s activities for completing the product beginning to end.
3. For each of its activities, develop activity-based costing data based on the resources used in each activity.
4. Classification of all activities as value-added or non-value-added.
5. For each activity, compare the costs with the value that the customers assign to it. …show more content…
Jack is actually costing the company more money due to his number of orders/shipments where Jill is actually a lower cost customer.
Using and Supply Resources-
Resources used-measured by multiplying cost driver rate by cost driver volume.
Resources supplied-expenditures or amounts spent on an activity.
Unused resource capacity-difference between used and supplied resources
Managers need to have a good handle on their costs. The use of the Activity Based Income Statement is a good tool to look at the use/non-use of resources. To have this information would benefit the manager in effectively using the company resources.
When designing a cost management system to assign capacity costs there are a few things that need to be known:
1) Actual activity-actual volume for the period needs to be estimated
2) Theoretical capacity-amount of production possible under ideal conditions- no maintenance time, breakdowns, or absenteeism. Hard to determine.
For managers to acquire the cost of unused capacity they need to define what is capacity and what level to use as the allocation base. He has several