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15 views23 pagesUnderstanding Activity-Based Costing (ABC)
The document outlines the objectives and importance of Activity-Based Costing (ABC) in managerial accounting, emphasizing its role in measuring costs, improving performance, and aiding strategic decision-making. It details the phases of ABC costing, including identifying activities, cost drivers, and assigning costs to products based on resource consumption. The ABC method is presented as a more precise alternative to traditional costing methods, focusing on activities rather than departmental hierarchies.
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0% found this document useful (0 votes)
15 views23 pagesUnderstanding Activity-Based Costing (ABC)
The document outlines the objectives and importance of Activity-Based Costing (ABC) in managerial accounting, emphasizing its role in measuring costs, improving performance, and aiding strategic decision-making. It details the phases of ABC costing, including identifying activities, cost drivers, and assigning costs to products based on resource consumption. The ABC method is presented as a more precise alternative to traditional costing methods, focusing on activities rather than departmental hierarchies.
Translated by
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© All Rights Reserved
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OBJECTIVES OF THE ABC
•Comprehensively
knowing the
manage the company
activities that
intervene in the manufacturing and
sale of the products, consumption of
resources and how they are incorporated
costs to said products.
• Measure the costs of the resources
used in developing the
activities in a business or entity
• Describe y apply
its conceptual development showing its
scope in managerial accounting
• Be a measure of performance, that
allow to improve the objectives of
satisfaction and eliminate waste in
operational activities.
• Provide tools to the
business planning, determination
of utilities, control and reduction of
costs and decision making
strategic.
• It is the cost assignment in
more rational way to improve the
cost integrity of the
products or services. Provides a
closest confrontation or
cost equalization and its
benefits, combining the
theory of absorption cost with the
of variable costing, offering
something more innovative.
IMPORTANCE OF
COSTING SYSTEM
ABC Management
• It is a managerial model and not a model.
accountant.
• Resources are consumed by the
activities and these in turn are consumed
for the cost objects (results).
• Consider all costs and expenses as
resources.
• Show the company as
set of activities and/or
processes more than as a
departmental hierarchy.
• It is a methodology that assigns
costs to products or services
based on the consumption of
activities.
PHASES OF ABC COSTING
• Activity-based costing is
a product costing method
of double phase that assigns costs
first to the activities and
after taking the products
as a basis the use of the
activities for each product.
ABC costing follows the
next steps:
• a. Identify the activities that
consume resources: requires understanding
all the required activities for
to make the product. When the managers
they analyze the processes they follow to
to produce a product or service,
discover steps that do not generate any
added value and decide to eliminate it.
• b. Identify the cost drivers. The
the ideal cost driver is one that
is related to the cost that is
is assigning. Next
we show the types of conductors of
cost that companies use. Which
are related to the volume of
production or with the complexity of the
production or the marketing process.
•
Calculate a cost rate for each cost driver. The predetermined rates
c.
for the allocation of indirect costs to products, the following is calculated
way:
• TARIFA PREDETERMINADA= ESTIMATED INDIRECT COST
______________________________________
Estimated Volume Allocation Base
• The costs are distributed to a
product multiplying the rate
default of each activity by the
volume of activity used in the
product development. Costing
based on activities calculate a fee
cost management for each
activity center. Each activity
it is associated with a set of costs.
• d. Assign costs to the products.
It consists of multiplying the rates
of cost management for the
number of conductor units
of cost in each product
THE STEPS TO FOLLOW
TO ACHIEVE THE ABC
• Analyze and identify the activities
supporting, to the manufacturing that
they provide the 'Departments of
Service" (to the productive and the
general) referred to by the
authors "Indirect Departments".
• Form homogeneous cost groups (costs
from each group, referring to an activity
valuing them, the activities, separately.
• Locate the "Activity Measures"
identifying them in "Activity Units"
it is better to apply the origin and variation of
the reference expenses. These measures, in the
In English, they are known as 'Cost Drivers'.
Generators
of Cost
• A classic argument in which
the authors of the ABC say
it's not the products but the
activities, those who incur the costs,
and it is the manufactured articles that
they absorb the activities.
Contradicting the first part with the
second, for the products originate the
activities, so it is logical that
those absorb their costs, of
agreement with the 'Principle of Origin and
"Benefit", which is unquestionable
• Aplicación de los Gastos Indirectos de
Manufacturing of the finished articles,
multiplying the 'Unit Cost of Provision
Cada Actividad", por el número de
"Units of Activity" occupied for
each product.
• Proceed now to obtain the "Unit Cost"
Provide each Activity to the Process of
Manufacturing, dividing the total cost of
each activity between the "NUMBER OF "
CONSUMED ACTIVITY UNITS
the "Identified Activity Measure."
• The cost assignment for this
the method is given in two stages where
the first consists of accumulating
the CIF by cost centers with the
difference that not only is
they use more centers than in the
traditional methods but
these take another name: they
they call ACTIVITIES. In the
second stage the costs are
assign to the jobs accordingly
with the number of activities that
are required to be completed.
• The method for obtaining
ABC costsit only refers to one element
of Production Cost, that is, to the
Indirect Manufacturing Costs. The cost
of operation intervenes
importantly in the obtaining of
utilities or incur losses.
• One of the objectives of the ABC is
raise awareness in the Organization, and in
particularly to upper management, it
how important they are
Departments of 'Service'
Indirectly," a matter that has always been
known, for if they were unnecessary, they would
they would have disappeared or been minimized,
how it happens with inventories
using"Just in Time, although
it can always be applied.
• With ABC, 'unit costs' are obtained.
of much more precise products and
tools.
• The ABC Method is not useful if it is used
only he for obtaining the Costs,
because it falls short in the most
important decision-making, thus
as direction and planning
Strategic, that have an impact on life
from the Company, since ABC is far
much of reaching the TotalCost, or its
approach: Comprehensive Cost-Set.
• The Method uses something that has been criticized.
hard at the TraditionalCost: the
prorations.
• The ABC presents a mirage when assigning,
to prorate or identify the Expenses
Production Indirects to the Activities,
but in reality, towards unity of
manufacturing perhaps the prorations have
increased, to later be applied in
much larger amount, since everything is put
in activities, it is indirect to the unit
elaborate, so they are indispensable
the prorations, presenting less truth
that the Traditional Cost, regarding the
unit.
• The origins of Cost, occupied by the Cost Method
Traditionally,thevolumeofproductionhasbeentheunit
elaborated or to be made, and the time, on the other hand,
ABC method recognizes or proposes many other "Origins".
of the Cost", according to the activities, that is, it adds the
aspect "Activity", which explains behavior from
this point of view, which had not been considered in the
Traditional Method, which does not mean that it is the
Correct towards the Unit Manufacturing Cost, for all.
the subjective characteristics, or bases found in each
one of the steps to obtain the Unit Cost of
Manufacturing with the ABC Method, a circumstance that does not
what happens with the Integral-Set Cost Method,
In addition to the 'Origin Cause', consider the
"Effect", not considered by the ABC Method.
• that explains the behavior from that
point of view, which had not been
considered in the Traditional Method, same
that doesn't mean it's the correct one
towards the Unit Manufacturing Cost, by
all the subjective characteristics, or bases
held in each of the steps, to
obtain the Unit Manufacturing Cost with
the ABC Method, a circumstance that does not
What happens with the Integral Cost Method-
Set, in addition to the "Origin Cause,"
take the 'Effect' into consideration, right?
thought of by the ABC Method.
• the ABC Method is the process of
logically group the activities, of
specify the responsible authority,
establishing relationships
of work, in such a way that both
the Entity counted the staff,
achieve their objectives.