Scribd
Upload
43 views3 pages

Implementing An ABC Model: Identify Resources

The document discusses implementing an activity-based costing (ABC) model in 5 steps: 1) identify resources, 2) determine activities supported by resources, 3) define cost objects, 4) develop resource drivers, and 5) develop activity drivers. An ABC system relates all costs to products, services, or customers by tracking the activities consuming resources and their associated costs.

Uploaded by

Noor Preet Kaur
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
43 views3 pages

Implementing An ABC Model: Identify Resources

The document discusses implementing an activity-based costing (ABC) model in 5 steps: 1) identify resources, 2) determine activities supported by resources, 3) define cost objects, 4) develop resource drivers, and 5) develop activity drivers. An ABC system relates all costs to products, services, or customers by tracking the activities consuming resources and their associated costs.

Uploaded by

Noor Preet Kaur
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Implementing an ABC Model

identify resources
Identify Activities Identify Cost Objects Define Resource Drivers

Calculate costs

Enter Activity Driver Qty.

Enter Resource Driver Qty.

Enter Resource Costs

Define Activity Drivers

The objective of an ABC implementation is to relate all of the costs of doing business to products, services, or customers. Developing the initial model consists of the following five steps: 1. Identify the Resources (expenditures) of an organization 2. Determine Activities (work performed) that are supported by Resources 3. Define Cost Objects (products, services, customers) 4. Develop Resource Drivers to link Resources to Activities 5. Develop Cost Drivers to link Activities to Cost Objects LIMITATIONS OF ABC SYSTEMS Activity-cost rates also need to be updated regularly. Very detailed ABC systems are costly to operate and difficult to understand. The main limitations of ABC are the measurements necessary to implement the system. ABC systems require management to estimate costs of activity pools and to identify and measure cost drivers for these pools. If there were no activities, no resources would be consumed. It is the activities that you do that define your business.

Concept of Activity-Based-Costing: An organization performs activities to do its business. These activities define the kind of business you are in: a ship owner has an activity to unpack boats; an accounting firm prepares tax returns; a manufacturer produces products; a council delivers services; a university teaches students. All activities consume resources. It is the consumption of these resources that adds to overhead costs. The basis of Activity Based Costing is: look at the activities required to produce the cost of the product or service. The activities consume resources and the cost of these can be calculated. The amount of activity required for each product and service is determined, hence the real cost can be determined.

The activity is the work that is done. The resource is what the activity uses to do the work e.g. people, equipment, and services. Resources cost money. The cost of the activity depends on the quantity of resources used to accomplish the activity. The cost driver for an activity is the factor that influences the amount of the resources that will be consumed by this activity.

An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods. Activity Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure. It is developed to provide more-accurate ways of assigning the costs of indirect and support resources to activities, bushiness processes, products, services, and customers.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy