Implementing
activity based costing method in a firm is not an easy and simple task. You can
not say that implementing activity based costing is as easy as ABC. In order to
implement activity based costing in a business all activities of the business
are needed to be broken down at discrete level. For example in order to
implement activity based costing a company has to divide its purchasing activity
into a number of discrete steps such as negotiation with suppliers, make
changes at their end such as updating the database, issuing purchase orders and
managing complaints both from the suppliers and the customers.
Large
companies use pilot scheme in order to implement activity based costing in
their business. Pilot scheme involves
the hiring of the consultants that implement the concept of ABC in a given
organization or firm. The consultants will analyze all the operations of the
firm and will take a number of new measurements to calculate activity based
costing for every product. The consultants are specialized in taking
measurements and implementing the activity based costing modal on the bases of
these measurements.
Activity
based modal uses an approach in which costs are assessed in a step by step
manner. The basic step is to start from the processes then to assess cost and
at the last manage the capacity at various levels of assessing costs.
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Every Thing in Organization
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What is actually being done
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Products, Services, Customers
Activity based costing helps to segregate the fixed costs,
variable costs and the over head costs. Such a spilt of the three costs
associated with the production helps in identifying the cost drivers associated
with each type of cost. The easy approach to implement activity based costing
in the existing system is to use activity based costing software along with the
routine accounting software of the organization. Activity based costing
software can be called when some extra information about the costing is
required to make a decision.
