Report Of Abc

Steps of ABC: 1. Identification of Activity:At first activities are identified and gathered together in activity pools , which means where all the costs are aggregated to get the accurate estimation of each activity cost. Ex:-* Machine related activities are 1.Electricity 2. Equipment mentainence. *Direct Labour related activity is Payroll. *Various supporting activities are ordering, receiving, material handling, packing, dispatching etc.

2. Assigning the cost to activity cost centre:Next is to create cost centre for each activity and assign the cost of the activity to each cost centre. Ex:-The cost of machine related activities are assigned in one cost centre which is created for the machine activities only.

3. Selecting the Appropriate cost driver:Now, the task is to identify the cost driver, which means the factors influence the cost of particular activity. The cost driver is any factors which influences the cost. Ex:-In marketing the activity is to create the demand for the product and here advertisement acts as cost drivers because it influences the demand of the product.

4. Assigning the cost of activities to products:The final stage is to trace the cost of the activities to the products according to the product Demand. So, the demand is measured according to the cost drivers.

Methodology:Methodology of ABC focuses on cost allocation in operational management. ABC helps to segregate   

Fixed Cost Variable Cost Overhead Cost

Fixed Cost:It means the expenses which does not change with the change of production volumes increases or decreases with a relevant range. So, they are less controllable because they does not depend on the production volume.

Variable Cost:It means it is the production cost which change with the proportion of goods produced. So, every goods that is produced the variable cost increases with same amount.

Overhead Cost:It is the company expenses that tends to happen regardless of production and sales. These costs are not linked with the products directly. *Here, direct labour and direct cost is very easy to find from the product but it is very difficult to find indirect cost from product.