ABC
Activity Based Costing, also known as "Prozesskostenrechnung" measures costs at the activity level, hence where they occur.
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Activity Based Costing
Business Case: "Why are our overhead costs higher than expected?" "What is our professional services margin?"
Overview: ABC is a more
accurate cost management system than Traditional Cost Accounting (TCA)
since TCA is unable to calculate the "true" cost of a product or
service. ABC is mainly used when overhead costs are too high, product
portfolio is too diverse, complex, has a high volume and amount of
direct labor. First you need to identify your activities. Then you need
to determine the costs for each activity. Next step is to determine the
cost drivers. Collect the activity data and calculate the product or
service costs behind each activity.
Benefits: ABC will enable you
to capture indirect costs that are normally difficult to track and
assign. With ABC, you will accurately cost these as product overheads.
You can then establish performance measures for process improvement and
perform target costing, set margins and assess incremental product or
service changes.
Outcome: More accurate cost
management methodology. Focuses on indirect costs (overhead). Traces
rather than allocates each expense category to the particular cost
object. Makes "indirect" expenses "direct".
Case Studies:
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