Activity Based Costing

IMA Advanced Management Accounting,CIMA考试管理级等级中高级管理会计，同时也适用于自己对于管理会计内容的自学

Activity Based Costing

• activity based costing
  • recognises that overhead costs are incurred through specific activities rather than production volume.
    • ABC 通过生产过程中的不同活动来确认成本，而不是简单地通过产量
  • ABC和absorption costing 的对比
    • 后者通过简单地将费用分摊到每个产品身上，太过简单而导致的不准确，这样可能会忽略真正的成本的发生环节，并且不利于进行分析
• cost drivers,cost object and cost pools
  • cost pools
    • implement ABC we first need to group our overheads into individual activities.These groups are known as cost pools.
  • cost drivers
    • identifying what causes these costs to be incurred in one cost pool. This is known as the cost driver.
  • cost objects
    • The cost object is basically the item or product we want to allocate costs to.
  • Types of costs
    • Unit level costs
      • Unit level costs are direct costs such as raw materials. They are allocated in the same way under ABC as they are in traditional costing ?directly to the product.
    • Product level costs
      • These are costs that relate to individual products.例如单个产品的包装费用
    • Batch level consts
      • These are costs that are not dependent on the volume of goods produced, but the number of batches they are produced in.
    • Facility level costs
      • These are costs that occur at a facility level, such as rent, security and depreciation. It is generally accepted that these are simply costs of being in business and do not relate to any specific area of production.
    • 如果overhead costs集中在unit level 和facility level，那么ABC的结果和传统的成本确定法相似，如果集中在product level和batch level，则ABC和结果和传统结果会有很大的不同
• ABC vs Absorption costing
  • traditional absorption costing
    • Step 1 Allocate production overheads
    • Step 2 Calculate gross profit per unit
  • ABC
    • Step 1 Determine cost pools and cost drivers
    • Step 2 Calculate the totals for each cost driver
    • Step 3 Calculate gross profit
  • 了解掌握两种方法结果不同的原因
    • Under an absorption costing system, which allocates all production overheads using a single volume-based driver (machine hours),traditional absorption costing was unable to account for the cost of a specific activity. Only through ABC were we able to trace each overhead cost to its individual driver and capture the more complex nature of manufacturing the Custom model.
  • Improved decision making with ABC
    • ABC is ideal for costing products such as this which are highly customised and diverse; a type of product that absorption costing has a tendency to under-cost.
    • some of options could be taken due to the improved costing information
      • Pricing
      • Review production process
      • Change product mix
      • Cost driver analysis
• Advantages and disadvantages of ABC
  • when to use ABC
    • ABC improved accuracy over traditional absorption costing generally occurs at the batch level and the product level. Therefore, ABC is most effective in environments where a diverse product range is being produced and items are produced in small batches rather than long, continuous production runs.
    • It is also important that ABC is implemented in environments where overhead costs are high in comparison to direct costs.
    • We know that a key difference between ABC and traditional absorption costing is that traditional methods assume overheads are volume-related whereas ABC does not.
  • Advantages
    • Improved pricing
      • With ABC managers have a more accurate indication of how much a product actually costs to make.
    • Improved cost control
      • management has a greater ability to pinpoint inefficiencies and address them.
    • Improved product mix
      • This allows a company to create a product hierarchy.
    • Improved profitability analysis
      • With more accurate costing information comes improved profitability analysis our products, our customers and our overall operation.
  • Disadvantages
    • Cost
      • ABC is not easy to implement.both time-consuming and expensive
    • Not required by IAS
      • ABC fulfils this requirement, but such a comprehensive approach is unnecessary, at least for financial reporting purposes.
    • Not always suitable
      • ABC is of limited benefit if overhead costs are low or are mainly volume-related. It is also ineffective if only one product is being produced or if every product is produced in a similar way