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    Activity Based Costing

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    pun_nis
    Activity-based costing (ABC) is a new approach to assigning overhead costs to products and services based on the activities required to produce them. It aims to more accurately assign indirect costs by tracing expenses to the activities that consume resources. The key aspects of ABC include identifying activities, cost pools, cost drivers, and cost objects. ABC assigns costs to products based on their consumption of activities, recognizing that resources are used to support various activities rather than directly producing units. The steps involve identifying resources, activities, and cost objects; defining cost and activity drivers; and calculating costs by tracing resource costs to activities and activities costs to cost objects.

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    Activity Based Costing

    Uploaded by

    pun_nis
    168 views14 pages
    Activity-based costing (ABC) is a new approach to assigning overhead costs to products and services based on the activities required to produce them. It aims to more accurately assign indirect costs by tracing expenses to the activities that consume resources. The key aspects of ABC include identifying activities, cost pools, cost drivers, and cost objects. ABC assigns costs to products based on their consumption of activities, recognizing that resources are used to support various activities rather than directly producing units. The steps involve identifying resources, activities, and cost objects; defining cost and activity drivers; and calculating costs by tracing resource costs to activities and activities costs to cost objects.

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    Activity-based costing (ABC) is a new approach to assigning overhead costs to products and services based on the activities required to produce them. It aims to more accurately assign indirect costs by tracing expenses to the activities that consume resources. The key aspects of ABC include identifying activities, cost pools, cost drivers, and cost objects. ABC assigns costs to products based on their consumption of activities, recognizing that resources are used to support various activities rather than directly producing units. The steps involve identifying resources, activities, and cost objects; defining cost and activity drivers; and calculating costs by tracing resource costs to activities and activities costs to cost objects.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    168 views14 pages

    Activity Based Costing

    Uploaded by

    pun_nis
    Activity-based costing (ABC) is a new approach to assigning overhead costs to products and services based on the activities required to produce them. It aims to more accurately assign indirect costs by tracing expenses to the activities that consume resources. The key aspects of ABC include identifying activities, cost pools, cost drivers, and cost objects. ABC assigns costs to products based on their consumption of activities, recognizing that resources are used to support various activities rather than directly producing units. The steps involve identifying resources, activities, and cost objects; defining cost and activity drivers; and calculating costs by tracing resource costs to activities and activities costs to cost objects.

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    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 14

    Presented By:

    Ruchi Kumari
    Payal Patel
    MEANING
    A new and scientific approach developed by Cooper
    and Kalpan(1988) for assigning overhead to end
    products, jobs and processes.

    It aims to rectify the problem of inaccurate cost


    information due to selection of wrong bases of
    indirect cost apportionment.
    DEFINITION
    In the words of Cooper and Kalpan,” ABC systems

    calculate the costs of individual activities and assign


    costs to cost objects such as product and services on
    the basis of activities undertaken to produce each
    product or service.”
    OBJECTIVES
    These objectives can be grouped in three parts :

     Product and Customer Profitability

     Process and cost improvements

     Resource planning.
    USES
    It helps to identify inefficient products, departments and
    activities.
    It helps to allocate more resources on profitable products,
    departments and activities.
    It helps to control the costs at an individual level and on a
    departmental level.
    It helps to find unnecessary costs.
    It helps fixing the price of a product or service scientifically.
    BASICS OF ABC
    Cost of a product is the sum of the costs of all

    activities required to manufacture and deliver the


    product.
    Products do not consume costs directly

    Money is spent on activities

    Activities are consumed by product/services


    ABC assigns Costs to Products by tracing
    expenses to “activities”. Each Product is charged
    based on the extent to which it used an activity.

    The primary objective of ABC is to assign costs

    that reflect/mirror the physical dynamics of the


    business.
    Provides ways of assigning the costs of indirect

    support resources to activities, business processes,


    customers, products.

    It recognizes that many organisational resources

    are required not for physical production of units of


    product but to provide a broad array of support
    activities.
    TERMS USED IN ABC
    Activity
    An activity may be defined as a particular task or unit
    of work with a specific purpose.
    Examples : placing of a purchase order, after sales
    service etc.

    Cost Pool
    It is grouping of individual cost items.
    Cost Objects
    It is an item for which cost measurement is required.
    For example: a product, a service, a job or a customer
    etc. are cost objects.

    Cost Driver
    It is a factor that causes a change in the cost of an
    activity. These are of two types- resource cost driver
    and activity cost driver.
    Resource Cost Driver
    It is a measure of the quantity of resource consumed
    by an activity. It is used to assign the cost of a
    resource to an activity or cost pool.

    Activity Cost Driver


    It is a measure of the frequency and intensity of
    demand placed on the activities by cost objects. It is
    used for assigning activity costs to cost objects
    consuming the activity.
    STEPS IN ACTIVITY BASED COSTING
    Identification of the main activities.

    Creation of cost pool.

    Determination of the activity cost drivers.

    Calculation of the activity cost driver rate.

    Charging the costs of activities to products.


    Building an ABC Model
    Identify Identify Identify
    Resources Activities Cost Objects

    Define Define
    Activity Resource
    Drivers Drivers

    Enter Enter Enter


    Calculate
    Resource Resource Activity
    Costs
    Costs Driver Qty. Driver Qty.

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