![]() Manufacturing of car start with creation of different steel plates for different parts of car, for example doors, body of cars etc. In general an automobile organization includes the below manufacturing departments. To illustrate the scenario in more details, I have taken a hypothetical example of an automobile industry: Direct/Indirect activity allocation, template allocations Here the Quantity of receiver cost centers are used as input to transfer the sender cost, that’s why it is called as Quantity input method. For example: in case of Indirect Activity Allocation, which is a method of pull approach, the activities on receiver cost objects are combined and a same values are transferred to sender cost objects as sender activity, which later on are used to transfer overhead cost from sender cost center to receiver cost centers. Pull approach is a method of overhead allocation, where quantities of receiver cost objects are used as a base to take the cost from sender cost centers. It is like pushing the overhead cost from sender to receiver cost object. ![]() Here the full or pre-defined percentage of cost from sender cost center is transferred to receiver cost objects. Push approach is a method of overhead allocation, where we transfer the cost from sender cost object to receiver cost object with a flow from sender to receiver. The main challenge of implementing this, is to identify cost driven activities and to link the overhead cost to the specify activities and designing the overall value flow. Push method (Assessment, Distribution cycles) or Pull method (Indirect activities allocation, template allocations)Īctivity based costing is activity driven concept with a key assumption that all the overhead costs are caused by different types of activity. Select the method of overhead allocation, e.g. Identify linkage between overhead cost and activitiesĮ. Bifurcation between direct and indirect costs associated with activities related to cost objectĭ. Identifying cost carriers or the activities performed in the cost objectĬ. Determining the cost objects, the organizational unit which can be used for tracking cost and distributing to productī. If we define the processes, it includes the below steps:Ī. The purpose of this document is to explain how we can identify key activities in any manufacturing process and what are the things that need to be taken care while using activity based costing in SAP?ĪBC is more logically, accurate, better way of allocating overhead cost, but on the other hand it’s more complicated to design and implement. In activity based costing process, first the activities are identified, which attract cost and then the total cost are distributed to product on the basis of number of activities consumed in the manufacturing and production processes. It is more logical method of determining overhead cost for the product than the historically method of using machine hours or man hours to distribute the cost. Activity Based Costing is a method of costing, where the cost of products, processes, customers are determined through Activities performed in the production/ support unit.
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