activity based costing_3

PRESENTED BY:

FAHEEM KHANMUHAMMED SAEED

MEENA KAMRAN IJAZ

TABLE OF CONTENT

What is ABC? Essential for implementation of ABC How ABC make decisions more

efficient? Intro of case study Discussion questions of the case study.

What is ABC?

Activity based costing is an accounting methodology that assigns costs to activities rather than products or services

This enables resource and overhead costs to be more accurately assigned to the products and the services that consume them.

ESSENTIALS FOR ABC

Involvement of top leadership Responsibility of cross functional teams Evaluation and rewards based on ABC.

HOW TO IMPLEMN ABC

1. Identify activities and resources

2. Measure the costs of resources used to perform each activity

3. Determine cost drivers and resource

4. Assign activity costs to products by multiplying the use of the cost drivers by the resource-consumption rates

CASE STUDY

Topic: Public sector, activity analysis, value added

company :A London boroughOBJECTIVES

Evaluation of cost drivers Decision about comparing department

performance with all other depts. nationally

Accuracy of cost and potential areas for cost reduction.

ABOUT CASE STUDY…….

New dept setup in nov, 2002 Manage partnership and corporate

initiatives, provide information and advice to business and developers.

Contribute to local policy in borough

ABOUT CASE STUDY…..

Dep't head is in favor of introducing ABC for accurate cost information and decisions.

Other managers are reluctant to try this technique as it has never been applied.

Clara want to show the effectiveness of this technique.

Total cost related to staff in department is $ 200,000

She is using just this cost for activity base analysis.

TOTAL COST OF DEPARTMENT

Activities & descriptionNO ACTIVTIES DESCRIPTION

1 Requests for information from businesses

Information packs have been prepared for telephone enquiries or letters to standardise the response to requests for information. Additional research may be necessary but this is not a significant activity

2 Request for information from developers

Information packs are provided giving details of labour market, training, financial information and further contacts

3 Project management and development.

The department develops and manages a wide range of projects including environmental improvements, seminars, training projects and joint venture developments. There is a lot of time taken up by preparing reports for committees

ACTIVITIES…..NO ACTIVTIES DESCRIPTION

4 Policy development A policy contribution includes work for different bodies such as the Government departments.

5 Work for other council departments.

It is difficult to define a typical request for information but generally each request involves a similar amount of activity.

6 Other This is time spent on various activities in the department, which Clara will consider in more detail in the future.

COST DRIVERS AND % USAGE ACTIVITY COST DRIVERS % of department’s

total hours by activity

Requests for information from businesses

Number of requests for information from businesses

21

Request for information from developers

Number of requests for information from developers

14

Project management and development.

Number of requests for Committee reports.

30

Policy development

Number of requests for policy input.

14

Work for other council departments.

Number of requests for information or analysis.

6

Other Number of hours. 15Total 100%

ESTIMATED ANNUAL VOLUMECost driver - estimated annual

Estimated annual volume - minimum

Estimated annual volume - maximum


1,000 1,200


550 650


70 120


140 180


170 240

Number of hours. 1,200 1,200

DISCUSSSION QUESTIONS

QUESTION # 1Clara wants to compare her dept’s

performance with other dept’s(with minimum cost per activity)

Identify Potential areas for improvements.

Activity rates calculationcost Reque

st for info from buss.

Req. for info from developers

Project mgt & devpnt.

Policy develpmnt

Work for other council depts.

other total

Staff related cost

42000 28000 60000 28000 12000 30000 200000

total 42000 28000 60000 28000 12000 30000

Activity rates cal……

Estimatedvolume

Request for info from buss.



Policy develpmnt


other

Maximum volume

35 43.076 500 155.55 70.58 Not applicable

Minimum volume

42 50.909 857.14 200 70.58 Not applicable

Average volume

38.18 46.666 681.57 175 58.53 Not applicable

Assumed data of other dept.

Estimated volume

Request for info from buss.



Policy develpmnt


other

Maximum volume

40 39 300 150 52

Minimum volume

39 47.20 500 205 65.58

Average volume

36 45 525.6 180 68.52

Discussion Question # 2

Evaluate the choice of cost drivers identified by Clara and discuss how the accuracy of the costs can be improved.

Description & cost driversNO DESCRIPTION COST DRIVERS

1 Information packs have been prepared for telephone enquiries or letters to standardise the response to requests for information. Additional research may be necessary but this is not a significant activity.


2 Information packs are provided giving details of labour market, training, financial information and further contacts.


3 The department develops and manages a wide range of projects including environmental improvements, seminars, training projects and joint venture developments. There is a lot of time taken up by preparing reports for committees.


Description & cost drivers…..SNO DESCRIPTION COST DRIVERS

4 A policy contribution includes work for different bodies such as the Government departments.


5 It is difficult to define a typical request for information but generally each request involves a similar amount of activity.


6 This is time spent on various activities in the department, which Clara will consider in more detail in the future.

Number of hours.

Identifying New Cost Drivers.Cost drivers by dept. Suggested cost driversNumber of requests for information from businesses

No of request entertained to provide information.


No. of request entertained to provide info. To developers


No. of hours used to prepare reports

Number of requests for policy input. No. of hours used for policy input


No of request analyzed.

Number of hours.

THANK YOU!!!!

ANY QUESTION????

activity based costing_3

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