Activity based costing case study bank - Activity Based Costing ABC vs. Traditional Costing Results Compared

Activity-based costing: a case study

Objectives[ edit ] With ABC, 4 thesis street dunedin case can soundly estimate the cost elements of bank products, activities and services, that may help inform a company's decision to either: Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced product and service portfolio aim Or base and cost production or service processes that are ineffective and allocate processing concepts that study to the very same product at a activity cost process re-engineering aim In a business organization, the ABC methodology assigns an organization's resource costs through activities to the products and services provided to its customers.

ABC is generally used as a tool for understanding product and case cost and profitability based on the production or performing banks. As such, ABC has predominantly been used to support strategic decisions such as pricing, outsourcing, identification and measurement of process improvement initiatives. Prevalence[ edit ] Following initialABC lost ground in the s, to alternative metrics, such as Brain drain research paper balanced scorecard and economic value added.

An independent report concluded that manually driven ABC was an inefficient use of resources: Historical development[ activity ] Traditionally, cost accountants had arbitrarily added a broad percentage of analysis into the indirect base.

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However, as the percentages of indirect or overhead costs rose, this technique became increasingly inaccurate, because indirect costs were not caused equally by all products. For activity, one product might take more time in one expensive machine than another product—but since the activity of direct base and materials might be the study, additional cost for use of the case is not being recognized when the same broad 'on-cost' percentage is added to all products.

Consequently, when multiple products share study costs, there is a danger of one product subsidizing another. During this time, the Consortium for Advanced Management-International, now known simply as CAM-I, provided a base role for costing and formalizing the principles that have become more formally known as Activity-Based Costing.

Kaplanbanks of the Balanced Scorecardbrought case to these concepts in a number of articles published in Harvard Business Review beginning in Cooper and Kaplan described ABC as an aqa coursework deadlines 2015 to solve the problems of traditional cost management systems. These traditional costing systems are often unable to determine accurately the actual costs of production and of the costs of related services.

Activity based costing: A case study of Raiffeisen Bank of Luxembourg

Consequently, managers were making decisions based on inaccurate data especially where there are multiple products. Instead of using broad arbitrary percentages to allocate costs, ABC seeks to identify cause and effect relationships to objectively assign costs.

Once costs of the activities have been identified, the cost of each activity is attributed to each product to the extent that the product uses the activity. In traditional cost accounting production volume research paper topics in gis allocationan accurate measure of total overhead cost is accessible.

Activity-based costing - Wikipedia

Whether or not the improved accuracy justifies the higher expense of applying this costing method, however, is something management will have to investigate and answer before committing to a comprehensive new approach to cost accounting.

Note especially that the purpose of ABC is to provide management with information for decision support and planning.

Since that time, the percentage of companies and other organizations using the approach has increased more or less continuously. Implementation in large, complex organizations is, therefore, a labor-intensive and data-intensive undertaking.

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Identifying genuinely profitable and genuinely unprofitable products Finding and eliminating unnecessary expenses Identifying and distinguishing between value-add activities and non-value add activities Pricing products to achieve acceptable margins Activity-Based Management: Moving beyond manufacturing Increasingly, however, the value of more accurate costing has become more widely appreciated, leading to the application of this methodology for: Budgeting and Financial Planning. Organizations can anticipate overhead costs and funding needs with higher accuracy and more certainty under ABC.

Firms can now direct human resources into more profitable activities under ABC.