صفحه 1:
Activity based costing system (ABC)
time driven activity based costing
صماوره
Supervisor:
Scholar :
صفحه 2:
صفحه 3:
What Is Activity-BasedCosting (ABC)?
—_—_—_06 S
Activity-based costing (ABC) isacostingmethodthat assigns
overfeadandindirect coststorelatedproductsandservices. This
accounting method of costing recognizes the relationship between
costs,overheadactivities,andmanufacturedproducts, assigning
indirect coststoproductslessarbitrarily thantraditional
costing methods. However,someindirect costs, suchas
management andoffice staffsalaries,are difficult toassigntoa
product. ABC became a popular costing tool amongst
manufacturing companies in the 7980s.
صفحه 4:
With ABC,a company can soundly
estimate the cost elements of entire
products,activitiesand services,
that may helpinforma company's
decision toeither:
Identify andeliminate those
productsandservices that are
unprofitableandlower theprices
of those that are overpriced
(product andservice portfolio
aim),or
Identify andeliminate production or
service processes whichareineffective,and
allocate processing concepts that leadtothe
very sameproduct at a better yield (process
‘re-engineering aim)
صفحه 5:
How Activity-Based Costing (ABC) Works
1۱ 0) Rea ل ا ل
eg ل ee ces eRe a eee
Ra ea ee Rec تمصي
COs ل econo ee acy
ad ee Re Cree Le ree oars ren aca
Pe one a eee od eri eee
na ee oT ec للك ل
ee ea
صفحه 6:
۱ 1 8 8
0
Bes
5
Activity-Based Costing Key Terms Explanation
pee ee Any measure of the frequency and intensity imposed
by a cost object
Any measure of the quantity of resources consumed by
activities
locos ited Any customer, service, process that requires separate cost
measurement
Crea aig
صفحه 7:
Activity-Based Costing Implementation Steps Diagram
Identify Activities, Cost Drivers, Assign Costs to Pools and Products
Assign Costs Assigning the cost مایم
to Products of activities to products. ۳
Identifying Cost Identifying what influences rr,
eed the costs of activities.
Assigning Costs
Assigning costs to ۲۰
to Cost Pools cost pools for each activity.
۱۰۱۹۹ با in an organization.
een mul Identifying activities | 0
صفحه 8:
If achieved, the split of cost helps to identify cost drivers. Direct Cabour and
materials are relatively easy to trace directly to products, but it is more difficult
to directly allocate indirect costs to products. Where products use common
resources differently, some sort of weighting is needed in the cost allocation
process. The cost driver is a factor that creates or drives the cost of the activity,
For example, the cost of the activity of bank tellers can be ascribed to each product
by measuring how Cong each product's transactions (cost driver) take at the
counter andthen by measuring the number of eachtype oftransaction.
صفحه 9:
* Identify and assess ABC needs - Determine viability of ABC method within
anorganization.
- Training requirements - Basic training for all employees and workshop
sessions for senior managers.
* Define the project scope - Evaluate mission and objectives for the project.
> Identify activitiesanddrivers
۰ Create a cost and operational flow diagra
arerelatedtoproductsandservices.
* Coffect data - Collecting data
where the diagram shows
operational relationship.
* Build a software model, validat
andreconcile.
* Interpret results and prepa
management reports.
* Integrate data collection «
reporting. 5
صفحه 10:
Applicability of ABCis bound tocost of requireddata capture. That drives the
prevalenceto slow processesin servicesandadministrations, where staff time
consumed per task defines a dominant portion of cost.
The potential problem with ABC, is that it essentially treats fixed costs as if
they werevariable. 1
This can, without proper
understanding, give some people an
imaccurate understanding which can
thenleadtopoor decisionmaking.
Even in ABC, some overhead costs are
Aifficult to assign to products a
customers, such as the chief executiv
salary. These costs are termed busin
sustaining’ and are not assigned
products and customers because ther
isnomeaningful method.
صفحه 11:
صفحه 12:
* Using TDABC metrics and Rey performance indicators in your
business can help you see how much money your company spends on
wasted time, Cost value and outdated processes, andit can show you
how to reduce theseumnecessary expenses.
* TDABC gives owners of business alike a clear understanding of the
actual cost of product production, delivery of service offerings and
individual tasks performed inside their companies. To accomplish
this, TDABC focuses on the relationship between time and cost
measurement to determine costs for the products or services a
company produces.
* Using TDABC, business owners can calculate the cost of one unit of
time for an activity in the business, whatever that unit is. For
example, a unit of time couldbeas small asoneminute of performing
a credit check on a client. For most service businesses and non-
profits, however, that unit isusually definedasa client or ajob.
صفحه 13:
You implement TDABC by recording
time on a timesheet, allocating fully-
Coaded Cabor costs (based on where
ae people spendtheir time) andby posting
N allocated payroll back into the
general edger. When youcan analyze
Cabor cost by product or service,
customer, job or by department, you
can analyze profitability the same
way. This ability to understand unit
economics enables management
reporting.
صفحه 14:
13 job costing can
Reduce the cost of
product design and
Identify and reprice less
profitable customer
relationships production
Tighten your payroll possibilities improve processes to
strategy to reduce of practical increase profit
overhead expenses applications margins
of time-
driven
activity-
Evaluate and impro‘ cy
۰ Optimize your product or
pricing structure
service offering to
maximize revenue
صفحه 15:
71 7 7 7 5 51 27 5 5! 1!
The accuracy of TDABC calculations directly depends on the approach to
calculation and how measurements are taken within a company.
With traditional activity-based costing models, many businesses attempt
timate time spent on particular activities by»surveying employees
regarding the amount of time they spend or would expect to spend on
‘certain tasks throughout the day. For example, an individual working in a
service business might report spending 45% of their time on Client A,
30% on Client B and 25% on Client C. Although this might appear like an
accurate estimate of time expenditure, this employee’s reported time on
work adds up to 100%.
9 a reality, most employees (even the hardest workers), on average, only
spend 80% to 85% of paid hours on revenue generating related tasks
| (this is called productive time or practical capacity). The, other,10% to
| 15% of the time workers might spend in training, staff meetings, paid
_ time off, transitioning between tasks, talking with co-workers, clarifying
instructions, responding to email or handling other non-specific tasks.
+ The difference between productive time and non-productive time is
referred to as the utilization rate, which shows the amount’ of time
employees generate revenue for the company. The utilization rate also
reveals where margins shrink and profit loss occurs.