Activity Based Costing – PowerPoint PPT Template

COST OPTIMIZATION PPT TEMPLATE DESCRIPTION

Editor Summary Activity Based Costing is a 29-slide PowerPoint presentation (PPT) sold as a digital download on Flevy that teaches a 7-phase consulting framework for assigning costs to the activities that drive them. Read more Developed by former McKinsey, BCG, Deloitte, EY, and Capgemini consultants, it includes templates and tools such as a cost object identification template, process mapping framework, cost driver analysis tool, profitability analysis model, spreadsheet income-statement templates, and benchmarking tools. Target users include financial analysts, corporate executives, consultants, and operations managers; used to evaluate product, customer, and channel profitability and inform pricing and product-mix decisions. Immediate digital download.

Use this presentation when an organization needs more accurate cost and profitability insight than traditional costing provides—typical triggers include high overhead structures, a move to product- or customer-level profitability analysis, post-merger cost-realignment, or workshops on process improvement.
  Financial analysts performing product- and customer-level profitability analysis using the profitability analysis model and spreadsheet templates.
  Corporate executives evaluating pricing and product-mix choices based on activity-driven cost allocations.
  Consultants mapping general ledger costs to activities and verifying economic logic during a costing-methods migration.
  Operations managers identifying high-cost activities through process mapping to target efficiency efforts.
The structured 7-phase approach—defining cost objects, process mapping, mapping GL costs, allocating costs, and verifying economic logic—aligns with the stepwise, hypothesis-driven implementations used at McKinsey, BCG, Deloitte, EY, and Capgemini.

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Cost Allocation: ABC vs. Traditional Methods Structured 7-Phase Approach to Activity Based Costing Cost Driver Identification and Unit Cost Calculation

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.

Gain insights into how ABC can be leveraged for cost object-level decisions, such as dropping unprofitable product lines. Understand the role of resource cost pools and resource drivers in accurately attributing costs to activities.

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