Description: The following article focuses on talking about the topic with the point of activity based costing. The content refers to activity based costing showing us the present situation of the companies which are facing the serious dilemma and are having a tough time in managing survival.
Friends, this is not the situation in Vietnam only companies all over the world are facing such dilemma and are having a real tough time in managing survival, the costs are increasing day by day and the competition is getting tougher every day.
Now the question is how far and how fast we can move with such high costs for making via the seasons accurate information, if we cannot measure course, then we cannot manage it here, I would like you to run through a slide to show us attainment.
Direct costs are traced directly to the coast objects and indirect costs are allocated to the objects either using traditional costing are using activity-based costing for understanding the concept of traditional costing, you can visit www.ccltss.org even by Cooper and Kaplan of Harvard Business School in 1980 packing storing office and management designing are the activities.
These activities are the fundamental cost objects in performing these activities, the resources of the firm like human resources building equipment and other resources are used and different products demand different activities in different proportion.
But Dr. may require for setups to cleanings and seven inspections product B may require one setup for cleaning to designing module and two inspections, this is a logical systematic and refined way of allocating overhead costs to the products or services in this.
We analyze the course in a company threadbare and arrive at the root cause of the coast, let’s see some products, don’t you think these 4dr require activities in different proportion very right? You are the next thing, we need to understand an activity-based costing is that all the costs are pooled according to what drives them or causes them to be incurred.
These factors are called cost drivers and the overhead costs are apportioned to various product or services on the basis of cost drivers, this is also known as transaction costing in activity-based costing that goes our first pool according to activities.
Then on the basis of the cost driver rates, products are charged with overhead course, so the next thing we need to understand in activity-based costing indirect cost are reclassified as direct cost to the extent possible.
For example, machine setup cost is indirect cost pool, it shall be allocated on the basis of setups required for production of different products, let’s have a look at the slide activity cost pool, his set-up cost, here’s the cost driver is number of setups and the Coast LIBOR rate is setup course divided by a number of setups in the same way or drink coast is activity cost pool.
The number of orders can be cause drivers and course driver rate is calculated in the same way, these activity cost pools do not bear any direct relationship with the volume of the goods produced as overhead costs are increasing every day activity-based costing is getting more and more relevant, it avoids in under coasting and over costing of the products as well as cost product subsidization.