Here is How to Perform Activity Based Cost Analysis in Only a Few Minutes, Identify Your Real Cost-Profit Information, Improve Your Current Cost-Profit Structure and Make Profitable Decisions for Your Business…
Studies have shown some interesting facts about activity based costing. While most business managers are aware of the power of ABC and the benefits of drastically improving their businesses by making relevant and fact based decisions, only a small percentage of them actually use ABC.
The 3 frequently mentioned issues when it comes to implementation of ABC are:
1. ABC Implementation is Expensive
Activity based costing systems are expensive to develop and implement and they require continuous investment, maintenance, training and support. Many business managers are not confident that the potential benefits will justify the large investments required by their organizations.
2. ABC is Time Consuming
Developing and implementing ABC is time consuming for every company. The business requirements have to be put in place, the organizational processes must be analyzed and clearly outlined and employees must be trained in order to use the system. External help from ABC consultants is necessary during development which takes anywhere from a few months to more than a year for the entire working system to be in place.
3. It’s Hard to Convince Decision Makers
It is challenging to convince management to invest the money and time in developing the ABC system. Implementing ABC and developing it into a major business initiative for the long run takes a real consideration by business stakeholders. They have to envision some real tangible benefits in order to make the go decision.
There is a Better and Smarter Alternative to Get All the Benefits of Having your ABC System Without Making Any of the Investments Mentioned Above and Without Taking Any Risk for Your Business
Now with the ABC Software for Microsoft Excel you can develop your Activity Based Costing analysis in a matter of minutes! This simple yet very powerful ABC application for Excel users gives you all the benefits without the hard part of risk, time and money investments.
The ABC for Excel has been already used by thousands of organizations worldwide in any market and industry. It doesn’t require any ABC training or expertise and any Excel user can take advantage of this activity based costing tool.
This product will help you identify the real cost in your business and it’ll open new perspectives into how you see your business. Having the real product and service costs allows you to make smart decisions and improve your profitability in addition to cutting costs and making informed decisions based on facts.
“ABC for Excel helped us improve our profitability in less than 1 month after we started using this product.”Janet D., Operations Manager
“The new ABC information helped us identify what was wrong and it was very easy to focus on reorganizing and streamlining our existing business processes and activities.”Mike T., Business Owner
“This is one of those tools you can use daily and apply to any business case. Now I am able to use ABC analysis in addition to traditional financial reporting and analysis.”Ben W., Management Consultant
ABC 101: What is Activity-Based Costing?
Activity Based Costing – ABC Costing Approach is a management accounting method that has helped many companies improve their profitability and cost structure. ABC costing identifies opportunities for management to improve pricing, products, services, operations and key business processes in order to improve competitiveness. Critical information that has been hidden by using traditional accounting approaches can be discovered by using activity based costing. To compete in the marketplace management must change the cost and profit management and reporting practices.
Activity Based Costing is a management accounting approach which allocate all direct and indirect (overhead) costs to cost objects (products and services) in order to help management understand critical business information. ABC allocates direct and indirect costs to products and services based on the level of activities used to create and deliver those products and services.
Activities such as purchasing, design, production, sales, marketing and customer service are utilized by different products and services (cost objects) based on their complexity and business requirements. Compared to traditional accounting, activity based costing is a decision making tool which provides more accurate cost and profit information and allows management to understand the cost and profit drivers and improve their business.
Activity Based Management uses activity based costing information to maximize value for the customers and other stakeholders and improve profitability. Management allocates resources to critical business processes, products and customers and improves overall efficiency as well as create opportunities for cost reduction and product, service and process improvement. By identifying costs of activities and activity utilization by different products and services decision makers have accurate and timely information and are able to make better and more effective business decisions. Activity Based Costing also identifies value added activities (activities which create value for the customer and the company) and non value added activities (activities which are currently performed but they do not create value for the customer nor for the company).
How ABC Works?
The overall objective of ABC Costing System is better understanding the overhead / indirect costs and profitability. What will change with ABC? While the overall costs and profit will remain the same the ABC Costing will inform management about profitability at the product level.
Activity Based Costing will allocate costs to products and services based on the level of resource utilization by different business activities. Each indirect cost is driven and at the same time can be controlled, planned and managed based on the business model and processes used by the company.
For example, the costs of each department and activity is driven by the company’s business model or the way the company does business (ex: employee hours, number of machine hours or number of shifts will drive the cost of each activity). Manufacturing as well as service companies can use ABC to assign costs to activities and activities to products and services in order to measure profitability.
The ABC approach includes allocation of indirect costs to departments, costs from departments to activities and costs from activities to cost objects. For example, every organization has departments which will vary based on the business (groups / teams such as sales function / department , warehouse department, purchasing department, administration, etc.). Indirect Costs from the General Ledger can be assigned by using percentage based on utilization level – for example, the rent cost can be allocated 70% to the warehouse department, 20% to administration and 10% to Sales and Marketing Department depending on the square feet used by each department.
Next, each department performance activities – for example, the design department may perform product development activities, the sales department will perform sales calls, quoting and sales presentations. Depending on the time spent by the sales force on each of these activities their indirect costs can be allocated to each activity – for example, 30% sales calls, 30% to quoting and 40% to sales meetings and presentations.
Finally, the costs of each activity is allocated to the cost objects (products and services). For example, let’s consider the sales meetings and presentations activity performed by the sales department: based on the time spent by the sales force on selling and promoting each product or service the cost of sales meetings and presentations activity can be allocated 50% to Product 1, 30% to Product 2 and 20% to Product 3.
Different products and services require more or less activities in creating them and selling them to the customers. This simple example demonstrates the way ABC allocates and calculates indirect costs and assign them to cost objects which is the overall objective – each cost object / each product and service will be measured at the net profit level.
Gross Margins / Gross Profit can be misleading because some products and services will be profitable at the gross margin level but they might be losers at the net profit level if they consume too much of the company’s activities. On the other hand, some products and services with lower gross margins might be very profitable at the net profit level because they are simple to create and deliver to the customers.
The following example demonstrates this point:
Business processes and operations are performed by different activities. Each activity has cost drivers which are used to calculate or estimate the cost of activities. Here are some examples of activities and cost drivers:
Examples of Cost Drivers: – Number of Calls – Percent of time spent on stocking each product – Square Feet – Labor Hours per Product – Machine Hours per Product – Number of Shipments per Product – Receiving Hours per Product – Stocking Hours per Product
There are different activity levels, for example unit level activities (activities performed on each unit such as packaging), batch level activities (activities performed on batch level such as scheduling and set up), product level activities (activities performed on each product such as design, engineering and marketing) and facility level activities (activities performed at each facility such as safety, training and maintenance).
How to Design Your ABC System?
Designing and implementing ABC Costing System involves identifying and defining all direct and indirect costs, company’s departments, activities, cost objects and defining ABC reporting.
The first step in designing ABC System is defining the indirect costs and departments and allocating the indirect costs to each department based on cost drivers.
Next, the cost from the departments are allocated to Activities based on how much activities are consumed by each department.
Finally, costs from activities are assigned to cost objects.
Benefits of Using ABC
Compared to traditional accounting, Activity Based Costing reports accurate product and service costs and provides insight into the cost drivers and identifies value added and non value added activities providing opportunities for improvements on a general company level as well as product and customer level.
Activity Based Costing Software for Excel
Activity Based Costing Software for Microsoft Excel is an automated Excel Application allowing Excel users to develop ABC system and create ABC reports with a click of a button in Excel. Used by thousands of companies worldwide this application has helped business users make better business decisions, better understand their businesses, improve business processes and operations, improve profitability and increase competitiveness. Now you can design your Activity Based Costing (ABC) System and create ABC Analysis and Reports with a click of a button in Microsoft Excel. This product is built based on best in class ABC expertise and experience simplified for any business user of Microsoft Excel.
Simple and easy to use Excel Templates allow you to create high quality business insight with ABC Analysis and Reporting. This product will save you a lot of time and money. You can use this proven Activity Based Costing (ABC) approach to develop an effective ABC system for your business.
Whether you are experienced or a beginner with ABC Costing this product will help you design and implement your Activity Based Costing system and help you better understand and improve your business.
This ABC application for Excel will lead you through the process by automatically designing customized templates based on your business input. This is the easiest to use and the most effective Activity Based Costing software in the industry which will help you become an Activity Based Costing (ABC) expert in a few minutes. You can watch the ABC for Excel video here