Question

In 250-500 Words Describe the criteria that could be used to determine activity-cost objects, and provide examples of typical activity lists. In addition, what would your approach be in managing an ABC project?

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Answer 1

Answer:

Activity based costing:

It is a technique for costing sheet recognizes activities in on company and assigns the expense of every activity to all items or products and services as per the genuine utilization or consumption by each.

This costing method allots increasingly indirect expenses (i.e overheads regarding costing)into direct expenses understand to other costing strategies .

An activity cost object or in costing terms cost driver impacts the costs of certain business tasks or operations.A cost driver legitimately impacts a business activity .There might be numerous cost drivers related with an activity .An activity cost driver makes the expense of an activity increase or reduction ,such a factor could be an adjustment in the expense of warehousing or an adjustment in level of production.

Examples of activity list:

Examples of cost drivers or activity list are

• Machine hours ,
• Number of engineering change orders ,
• Number of client contacts ,
• Machine set up required for production and so on.

Further for dealing with an project which incorporate immplementation of activity based costing we focus on some basic steps which are required for effective usage of activity based costing .

These steps are following:

i)Activity identification:

First activities must be recognized and gathered in activity tools.

ii)Activity analysis:

In this step need to obviously identify the procedures which support item and staying away from a portion of the efficient or systematic in accuracies of conventional costing framework .This step recognizes indirect cost relationships and permit assignment of some percentage of that activity to a finished product legitimately.

iii)Assignment of cost :

In view of past steps costs are allocated to an activity tool.These tools will each have some commitment to object cost.

iv)Compute activity rates:

Beginning analysis may incorporate direct work hours or indirect labor or work hours .These activities must be relegated an value in genuine currency.All weightings must be included or added this step.

For example production work hours ought to be regarding weighted labor rate including benefits costs.

v)Assign cost to cost objects:

When activity costs tools are distinguished and clearly identified ,the following steps is to allocate them to cost objects .Objects are commonly defined as the outcomes or results offered to customer.In both manufacturing and non - manufacturing environments this item should have some sale-able value to contrast with assigned expenses.

vi)Prepare and distribute management reports:

When Activity based costing analysis is finished that costs information ought to be set in a concise and coherent way for cost object and procedure proprietors .This correspondence of the costing investigation is basic to legitimize or justify the expense of the analysis ,as frequently this isn't an inconsequential cost.

Conclusion:

This analysis permits organizations to make decisions about product offerings or product lines,where to coordinate direct sales efforts ,and to approve the genuine worth gave by capital equipment .

The key of the estimation value of this type of costing is that it is actionable