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ABC - Activity Based Costing

We assist in identification of activities and judiciously assign costs

ACTIVITY BASED COSTING

We provide flawless services on the conceptual aspects, steps to be undertaken and challenges faced while implementing Activity Based Costing. Activity-based costing (ABC) is a method of costing which determines the activities in a company, allocates the cost to every activity along with the facilities assigned to the products and services in line with real consumption by every product and service. The Chartered Institute of Management Accountants (CIMA) provides definition of ABC as a technique of costing and overseeing the activities that comprise of tracking resource utilization and pricing of ultimate results. Each activity is allocated a particular resource and activities are assigned to cost items as per the respective estimate of utilization. The second part employs cost factors for linking the costs of activities to the outcomes.

Utilizing ABC, an organization can accurately estimate the costing factors of all its items, activities and services being provided. This facilitates information of an organization's declaration for one of the following:-

  • Identification and elimination of the items and services which are non-profitable and decrease the cost of those which are high in cost (this is termed as product and service functioning objective)
  • Identification and elimination of manufacturing or service methodologies which are not effective and allocating process ideas which result in the same item generating a superior output (process re-engineered objective)

In a professional company, the ABC method allocates the company's resource prices by means of assigning activities to the items and services being imparted to the Clients. ABC is normally utilized as a technique for comprehending price and profit aligned with the manufacturing or performance related activities. ABC has majorly been employed for supporting key decision making processes viz. costing, sub-contracting, identifying and measuring process augmentation activities.

The method of ABC is focused on assigning costs during operations. ABC is an effective tool for demarcating:-

  • Fixed cost
  • Variable cost
  • Overhead cost

The above mentioned splitting of costs is beneficial for identification of cost driving elements. Direct labor and products are comparatively simple to track to the items, but it is not easy to assign indirect costs to the items. Whereas the items utilize commonly available resources in a different fashion, some weightage is required in the cost assigning procedure. The cost driver is a parameter that helps in creation or driving of cost of activities. The cost of activity of a bank employee can be measured by evaluating how much time is taken for a bank transaction and the number of transactions. The activity of an operating machine is its running hours which drive aspects viz. labor, maintainability and the energy cost incurred while the machine is running.

Further, Activity Based Costing:-

  • Applies across the organization's finance, cost and account related functions
  • Is a model utilized for its total scope as well as partial visibility
  • Assists in identification of ineffective items, divisions and activities
  • Allocates of extra resource on profit bearing items, divisions and activities
  • Controls prices at any item level or divisional level
  • Identifiesredundant costs that can be eradicated.

Certain difficulties are faced and limitations encountered while implementing Activity Based Counting. Few of them are mentioned below:-

  • Considering fixed costs as variable: The main issue with ABC similar to other cost assigning processes is that it considers fixed costs as variable, which leads to misrepresentation resulting in erroneous conclusions. Assigning PPE to individualistic items, as an example, leads to discontinuity of items which may appear non-profitable post assigning, and their discontinuity adversely impacts the baseline.
  • Tracking Costs: In ABC, few overheads are not easy to allocate to item or services e.g. CEOs remuneration. Such costs known as "Business sustainment" are not allocated to items or services as there is no tangible methodology. This chunk of overhead costs should be still covered by inputs from each item since it is not as huge an overhead cost prior to implementation of ABC. Random allocation of costs to activities is not desirable.

We provide superior high quality services and impeccable support to our readers for completion of their assignments and homework related to implementation of Activity Based Costing. Few of the services imparted by us are as under:

  • High quality technical expertise and acclimatization to result-oriented methodologies of accounting solutions which provide able guidance to our readers to implement Activity Based Costing.
  • Understanding of concepts and the equations used for implementing have been explained by us in a clear and concise manner.
  • We also have described in detail the various factors involved in Activity Based Costing and the applications of ABC.
  • We have indicated samples and examples of Activity Based Costing that proves as a guiding factor for effective implementation of ABC.
  • We have also emphasized on the difficulties faced, limitations occurring and factor which are normally misleading our readersw.r.t implementation of ABC and have and have provided resolutions for them.

To conclude, effective implementation of Activity Based Costing is a specialized art and to do so accurately and efficiently, require superior technical expertise and accounting skills. An obvious question coming to one's mind is-why choose us for assignment and homework completion related support for implementation of ABC. The main reasons are given below:

  • We are having experienced and faculty who provide effective knowledge and technical guidance to our readers for result-oriented implementation of ABC since it requires clear conceptual understanding and vast experience in accounting techniques.
  • We familiarize our readers to the various factors involved and equations used for implementing Activity Based Costing giving clear and specific reasoning and detailed descriptions.
  • We also provide several samples and examples related to implementation of ABC which are an effective guiding tool to assist our readers in implementing Activity Based Costing.
  • We further describe in detail the applications of ABC in various areas of implementation of an organization and the impact of ABC in assigning costs to activities.
  • We emphasize on the challenges encountered and limitations involved in implementing ABC and provide clear resolutions.
  • We are extremely price effective and techno-commercially viable in imparting accurate and effective services related to implementation of ABC.

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