Activity Based Costing: Strategic Cost Management
Activity Based Costing: Strategic Cost Management
M B A THIRD SEMESTER
Dr. Mustafa K
Visiting Faculty
School of Management Studies,
DCMS, University of Calicut
[email protected]
Requirement of Cost Systems
• Valuation of inventory and measurement of the
cost of goods sold for financial reporting.
Product Complexity
Channels of Distribution
Quality Requirements
Product Diversity
Costing Products...
Work
Activities
Performed
Cost Objects
Product or
Cost Objects
service
Basics of A B C
• Cost of a product is the sum of the costs of
all activities required to manufacture and
deliver the product.
• Products do not consume costs directly
• Money is spent on activities
• Activities are consumed by
product/services
Basics of A B C (contd.)
• ABC assigns Costs to Products by tracing
expenses to “activities”. Each Product is charged
based on the extent to which it used an activity
Activity Dictionary
Depreciation 155,000 Maintianing Present Business 80,000 60000 50000 5000 10000 205,000
Electricity 132,000 Purhcasing Material 125,000 50000 20000 20000 60000 275,000
Define Define
Activity Resource
Drivers Drivers