Activity Based Costing

Learning Objectives

• To analyze how activity-based costing works and where it can bring the best results.
• To describe the differences between traditional methods of applying overhead and activity-based methods as well as the four critical factors to consider.
• To observe the three critical steps for implementing and using activity-based costing in your organization.
• To analyze how to select the most appropriate cost driver to apply activity-based cost pools.
• To distinguish the types of activities, including unit, batch, product, and facility costs, their hierarchy, and their relationship to one another.

Course Description

Today an emerging focus is to become a “learning organization.” Unlike traditional accounting reports to which managers react by being happy or sad, ABC data makes them smarter!

Critics have claimed that traditional managerial accounting is at best useless and at worst dysfunctional and misleading. Today’s general ledger and budgeted spending systems support departmental and “stovepipe” managerial philosophies.

In contrast, activity-based costing (ABC) information supports process-based thinking. ABC is a key component of the increasingly popular enterprise and corporate performance management (EPM/CPM) systems.

Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.

ABC is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.

The ABC calculation is as follows: 

• Identify all the activities required to create the product.
• Divide the activities into cost pools, which include all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool.
• Assign each cost pool activity costs drivers, such as hours or units.
• Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.
• Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.
• Multiply the cost driver rate by the number of cost drivers.

In this CPE Webinar on costs, we will take you through the practical aspects of each step one by one.

Major topics covered in this online CPE course:

• Best Practices & Procedures of ABC
• How ABC can bring truly accurate fact-based measures and visibility to costs
• Measure channel and customer profitability
• Discover how to reduce costs and improve productivity

Overview

• Assigning manufacturing costs

  7 mins
• How costs are treated under activity-based costing

  14 mins
• Designing an ABC system

  22 mins
• Assign costs to activity cost pools

  30 mins
• Product margins

  41 mins