Activity-Based Costing


0

Activity-Based Costing:

 

Activity-based costing seeks to relate all relevant expenses to the value adding activities performed. For example, costs are assigned to a customer or product to reflect all relevant activity cost independent of when and where they occur. The fundamental concept of activity-based costing is that expenses need to be assigned to the activity that consumes a resource rather than to an organizational or budget unit. For example, 2 products produced in the same manufacturing facility, may require different assembling and handling procedures. One product may need an assembly or packaging operations that requires additional equipment or labor. If total equipment and labor costs are allocated to the products on the basis of sales or units produced than both items will be charged for the additional assembly and packaging operations required by only one of them.

 

In case of logistics, the key event is a customer order and related activities and relevant costs that reflect the work required to fulfill the order In other words, logistical activity-based costing must provide managers the insights needed to determine if a specific customer, product, order, or service is profitable. This requires matching specific revenue with specific costs. The guiding criteria for effective logistical activity-based costing are relevancy and consistency. Relevancy is important in the sense that the costs assignment helps managers to better understand the major factors affecting logistics expenses. Consistency is important in terms of comparing related activities over time. In the final analysis, a logistical costing system has to make sense only to the managers who are using it as a guide to decision making.


Like it? Share with your friends!

0
BMS Team

We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected].

5 Comments


Warning: Undefined array key "html5" in /home/bmsnewco/public_html/wp-content/plugins/facebook-comments-plugin/class-frontend.php on line 140

Facebook comments:

This Website Is For Sale. Email us an offer we cannot refuse on [email protected] :)

X
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube and Vimeo Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format