abc costing

v11cyw

anyone looked into activity based costing ive looked at target costing and value engineering but just come accross abc costing iv done the last 5 years papers abd it hasnt come up!, watch it will be in the exam tomorrow

Khurram Taj

Activity Based Costing (ABC)

Yes you are right, it didn't come across since last few years but it could be asked tomorrow.

Activity Based Costing was developed in 1970 and 1980's as an alternative ot the basic absorption costing. The principle of Activity Based Costing (ABC) is to breakdown the overheads into their constituent elements.

Best regards

Khurram Taj

v11cyw

still do not know how to calculate abc costing i dont remember anythng about it!panick

donnaalwill

What textbook are you using? It was covered in my Kaplan book I don't know about other books? I haven't studied it very much though so hope it doesn't come up as only know the basics. If its not in your book at all I can copy what I can for you?

Flying Scarlet

Feck!! I have never heard of this!!!

donnaalwill

It hasn't come up in a few years, its touched on in June 05 1.3 but I don't remember seeing anything else. Its included in my txtbook which is why I had heard of it but haven't really done much practical work on it.

Flying Scarlet

Ive just looked in my book & there is 2 pages on it which includes the entire calc process... oh well best give it a looksie

donnaalwill

I would hope its not going to come up, if its not being covered in classrooms or in other textbooks, plus not being covered for a few years I'd imagine its not something to panic about!

donnaalwill

Ahhh so it is in other books then! I've covered the basics, hope it doesn't come up but best to have an idea about it! Good luck

Flying Scarlet

Well I have looked through all my notes from last years class & cant find a mention of it so the chances of it coming up are low but still better safe than sorry.

Good luck to all

v11cyw

hi would it be possible to copy me the basics or give me a brief example, many thanks

donnaalwill

Activity based costing approach:

Activity based costing avoids the problems experienced by traditional costing methods. If management are keen to control costs, then it is vital that they should know the activities that cause costs to arise.

a) Cost drivers:
Those activities that are the significant determinants of cost are known as cost drivers. For example, if production scheduling cost is driven by the number of production set ups then that number is the cost driver for the cost of production scheduling. The cost drivers represent the bases for charging costs in the ABC system, with a separate cost centre established for each cost driver.

b) Cost pools
Where several costs are 'driven' by the same activity (eg engine oil, machine breakdown and repairs) then these costs are put into cost pools and the total of the cost pool is absorbed by say machine hours.

The mechanics of operating an ABC system are similar to a traditional costing system. The significant cost drivers need to be ascertained and a cost centre is established for each cost driver. Costs are allocated to products by dividing the cost centre costs by the number of transactions undertaken.

For example in Plant Y a set up of a production run would be a cost driver. The cost of the engineers who do the set ups would be a cost centre. If the cost of the engineers is say £280000 and the number of set ups is 500, then the charging out rate is 280000/500 = £560. A product which has a number of small production runs will thus have a greater proportion of these costs relative to the quantity of the product produced, than a product with large production runs.

(copied from txtbook)