activity based costing - page 4
Keywords: ABC
By finil on 15/05/2009
Level: Master's degree (MA, MBA, MSc, MEng, MRes, MPhil etc)
Page Number: 4 of 8 pages: 1 2 3 4 5 6 7 8
institution need to understand the cost of product, quality and status to assist them with
Identifying strategy
purchasing decision
performance development
The Approach
Employees who from different location are attending in different workshop. In this work shop employees are getting more awareness of why the company need more accurate information about costing and what they are expecting from them. In each activities they will ask them how much time to accomplish the task and how they allotted the activities for each cost object.
As a result of this information, it became more expensive than everyone thought for the process. It also gave result into which products were profitable or not. This helped to take pricing decisions when buying loans from other financial institutions. It also helped management to realize that as the ration of loans in different stages changed, the cost of servicing loans will increase or decrease. It enables as a benchmark for comparing out-put in different locations. When the firm organized to merge the number of locations that were performing an activity, this information helped them allot the activities to those locations with the lowest cost for a specific activity.
COST POOLS AND COST DRIVERS
Cost Pool
A logical grouping of Resources or Activities aggregated to simplify the assignment of resources to activities or activities to cost objects. Elements within a group may be aggregated or disaggregated depending on the informational and accuracy requirements of the use of the data. A modifier may be appended to further describe the group of costs, i.e. Activity Cost Pool.
Cost Driver
Any situation or event that causes a change in the consumption of a resource, or influences quality or cycle time. An activity may have multiple cost drivers. Cost drivers do not necessarily need to be quantified; however, they strongly influence the selection and magnitude of resource drivers and activity drivers.
The cost driver is a quantitative measure associated with the workload of the activity. It normally reflects the output of the activity. It should give a good explanation of the behaviour of costs in the pool and should be identifiable with each product line for the final stage of product costing. As historical data are often not available to undertake statistical testing of the relationship between the cost driver and the behaviour of cost in the cost pool, the choice of cost driver may require the exercise of judgement. This should involve management with local and detailed
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