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Activity Based Costing (ABC) analysis is a methodology for assigning costs to those activities that truly drive these costs. It is tangibly more accurate than traditional costing methods. Traditional costing methods overlook product-specific R&D, advertising, distribution/channel, and administration costs. As a result, there is no way to capture different behaviors tied to specific customers or products.
ABC costing analysis is a valuable costing technique to know for a number of key reasons:
• ABC allows you to develop a picture of the true profitability of product lines, customer segments, distribution channels, geographies, and other market segments.
• ABC aids in a number of strategic decisions, from determining target markets to selecting the optimal product mix to making informed pricing decisions.
Specifically, Activity Based Costing analysis leads to a more accurate assignment of costs to cost objects through a process of:
• Matching the logical flow of costs through the cost system to the economics of true cost flows.
• Mapping costs from "resources" (e.g. wages paid, supplies purchased) to activities performed (e.g. units manufactured) to cost objects (e.g. products, customers, distribution channels) that drive those costs.
ABC is an invaluable tool for making strategic decisions, as it allows you to develop a picture of true profitability of product lines, customer segments, geographies, distribution channels, and other markets. This document explains a 7-phase approach to Activity Based Costing:
1. Develop Cost Objects
2. Group Cost Objects
3. Develop Process Maps
4. Identify Cost Elements
5. Map General Ledger Costs
6. Allocate Costs
7. Verify Economic Logic
In this Activity Based Costing PowerPoint presentation, each phase is discussed in detail and includes examples.
Additional topics discussed in this Activity Based Costing PPT include ABC vs. traditional costing methods, advantages and drawbacks of ABC, spreadsheet modeling, product profitability-driven customer profitability, among others. With this in-depth presentation, you can gain the understanding of how to develop an Activity Based Costing formula and Activity Based Costing System for your organization.
A full Activity Based Costing example is also included, which breaks down the financials overview, key activities, activity costs, activity drivers, product profitability analysis, and activity based customer profitability.
Got a question about the product? Email us at [email protected] or ask the author directly by using the "Ask the Author a Question" form. If you cannot view the preview above this document description, go here to view the large preview instead.
Source: Best Practices in Costing, Management Accounting, Activity Based Costing PowerPoint Slides: Activity Based Costing PowerPoint (PPT) Presentation, LearnPPT
ABOUT THE AUTHOR: LEARNPPT
We are a team of management consultants trained by top tier global consulting firms (including McKinsey, BCG, Deloitte, EY, Capgemini) with a collective experience of several decades. We specialize in business frameworks based on real-life consulting engagements.
Utilize our consulting frameworks to apply structured thinking & analysis to address your business challenges, uncover strategic insights, and implement workable solutions. Our PowerPoint presentations follow traditional consulting slide design formats, starting with a clear slide headline. Easily customize and repurpose our slides for your own business presentations.
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This business document is categorized under the function(s): Corporate Finance Strategy, Marketing, & Sales
It applies to All Industries
File Type: PowerPoint (ppt)
File Size: 682.5 KB
Number of Slides: 29 (includes cover, transition, & marketing slides)
Related Topic(s): Costing Management Accounting Activity Based Costing
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Initial upload date (first version): Apr 21, 2013
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