Activity Based Costing.pptx

Activity Based Costing.pptx - OVERHEAD COSTING...

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OVERHEAD COSTING
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Activity- Based Costing In contrast to traditional/absorption costing system, ABC system first accumulates overheads costs for each organizational activity, and then assigns the costs of the activities to the products, services, or customers (cost objects) causing that activity. Activity-Based Costing System It also reflects full cost pertaining to a product. ABC system establishes relationships between overheads costs and activities so that we can better allocate overheads costs. It reflects the more accurate use of overheads costs based on 2
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ABC - Objectives The primary objective of ABC is to assign costs that reflect / mirror the physical dynamics of the business. Provides ways of assigning the costs of indirect support resources to activities, business processes, customers, products. It recognises that many organisational resources are required not for physical production of units of product but to provide a broad array of support activities.
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Cost Pools & Cost Drivers Activity-Based Costing System Activity Cost Pools Activity Cost Drivers Production a) Number of units b) Number of set-ups c) Number electricity units consumed Marketing a) Number of sales personnel b) Number of sales orders Research & Development a) Number of research projects b) Personnel hours spend on projects c) Technical complexities of the projects Customer Service a) Number of service calls b) Number of products serviced c) Hours spend on servicing products Purchasing a) Number of purchase orders Material Handling a) Number of material requisitions
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Types of Cost Drivers Activity Based Costing 6 Transactio n Drivers # of purchase orders # of customer orders processed # of inspections performed # of set-ups undertaken Duration Drivers Set up hours Inspection hours Labor hours Production hours Loading hours Intensity Drivers Each overseas purchase order should be weighted 1.5 times of local purchase order Each overtime hour shall be charged as twice of the normal wage hour
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Resource Costs Cost Pools: Plants or Departments Cost Objects Traditional Costing Resource Costs
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