Activity Based Cost Calculation_Management

LECTURE NOTES ACTIVITY BASED COST CALCULATIONS A quantity-based costing system uses factory overhead costs based on quantity, including single rates for all factories and rates for each department. These quantity-based overhead ra typically use indicators such as direct labor hours for any product or service, machine hours, or direct labor costs. Even if a company has several products or processes, these overhead rates often result in incorrect and inaccurate product costs. Very distorted. Activity-based costing systems recognize that products and services incur indirect costs by tracking activity usage rather than spending volume. The difference between activity-based costing systems and quantity-based costing systems is that they link resource use to activities and activity costs to products, services, or customers. Three stages are required to develop an activity-based costing system: 1. Determine the cost of resources and activities. Perform an activity analysis to determine the costs of business resources and activities. Most companies record resource costs in their general ledger accounting system. 2. Allocate resource costs to activities, use resource consumption cost drivers to perform activity-based costing, and include activities in resource costs, because activities drive the cost of resources used in operations, enterprises need to select cost-based resources to consume resources based on causal relationships. 3. Assign activity costs to cost objects according to cost drivers to carry out appropriate activity consumption. Output is the cost object of the activities carried out by the company or organization. Typically, the outcomes of a costing system are products and services, but outcomes may also include customers, projects, or business areas. In conclusion, activity-based costing systems differ from quantity-based costing systems in two ways: 1. An activity-based costing system defines cost protection as an activity and not as a manufacturing cost center or factory. 2. The cost driver of an activity-based cost system used to calculate the cost of an activity for a cost object is a cost driver based on an activity or activities performed on a cost object. The quantity-based method uses a quantity-based cost driver. These cost drivers usually have nothing to do with resource consumption and cost objects. The main advantages of calculating activity-based costs experienced by many companies are:  Better in measuring profitability.  Better in decision making.  Process improvement.  Cost estimation/cost estimation.  Cost of unused capacity. One of these benefits can greatly increase a company's competition by helping a company make better decisions and execute its strategy. A quantity-based costing system calculates factory overhead costs (FOH- Factory overhead) based on direct labor hours (DLH- direct labor hours). HBT can use activity-based calculations to identify activity cost factors, budget costs and activity consumption. This is the information needed to set stage 3; Cost of activities to cost objects. The five phases of Haymarket Bio Tech Inc.'s corporate strategic decisions. 1. Identification of strategic issues that influence the problem 2. Decide on alternatives 3. Get alternate information and analytics 4. Select and implement possible alternatives according to strategy and analysis. 5. Ongoing evaluation of effectiveness of Phase 4 implementation. In order to be competitive, companies need to evaluate every activity based on product or customer demand for the activity, the efficiency of the activity, and the value embodied in the activity. One of the reasons companies carry out an activity is as follows: 1. Must meet product specifications, services, or customer requirements. 2. Organization needs to be taken care of. 3. Evaluate the profitability of the company. By eliminating activities that have little value to customers, you can reduce resource consumption and focus on activities that increase customer satisfaction. Value added activities can add significant value to a product or service for customers. High value added activities significantly reduce the value of products and services to customers. On the other hand, lowvalue activities consume time, resources or space, but rarely satisfy customer needs. Customer satisfaction has hardly changed. You can reduce costs by reducing or eliminating activities that have small added value. Activities or activities with low added value are as follows; 1. Eliminate without affecting the type, application or function of the product or service/services. 2. Start with the prefix “re/re” (rework, returned materials/items, etc.). 3. Causing waste, with little or no increase in the value of the product or service. 4. Duplicate to other departments or add unnecessary Steps to business processes. 5. Produces unwanted output. Customer Profitability Analysis allows you to determine the profitability of each customer or group of customers by identifying customer service activities and cost factors. Customer cost analysis determines the activities and cost drivers in serving customers before and after sales, excluding product costs. According to customer activities and cost drivers to obtain and complete transactions, customer costs can be divided into the following categories; 1. Customer costs from the unit level 2. Customer costs from the product group level 3. Fees for customer loyalty 4. Costs for distribution channels 5. Costs to maintain sales