Activity-based costing appears in the mid-1980s, its promoters: Cooper Robin and Kaplan Robert, determining that the cost of products must include the cost of the activities necessary to manufacture and sell it and the cost of raw materials. Why the new costing systems instead of the traditional ones? It is the question that I will try to explain in the shortest way according to my point of view:
From the point of view of traditional costing, these allocate indirect costs, generally using the products to be produced as a base, unlike ABC, which identifies that indirect costs are assignable not on the basis of products, but rather on the activities carried out. to produce such products.
For this reason, the ABC model allows greater accuracy in the allocation of company costs and allows viewing them by activity, understanding activity by definition given in the text of the Master in Business Administration of the MG Jaime Humberto solano " is what a company does, the way in which times are consumed and the outputs of the processes, that is, transforming resources (materials, labor, technology) into outputs ”.
Other ideas drawn from other authors point to the activity as: The Action or set of actions carried out in the company to obtain a good or service. They are the nucleus of cost accumulation.
It is made up of tasks
This means that today's information systems must not only have the traditional objectives of reporting information, but also facilitate analysis at all levels of the organization in order to achieve efficiency goals, analysis of indirect activities consumed by products. in its elaboration to correct and improve the distortions that appear, highlighting in the long term all the variable costs.
| >>> consumption >>> consumption | ||
| Resource transformation | >>> Activities | >>> Results |
From the previous diagram we can extract some postulates that highlight the importance of the ABC management costing system
- It is a management model and not an accounting model. Resources are consumed by activities and these in turn are consumed by cost objects (results). It considers all costs and expenses as resources. It shows the company as a set of activities and / or processes rather than as a departmental hierarchy. It is a methodology that assigns costs to products or services based on the consumption of activities.
But really what are the steps to start designing a good costing system that allows me not to over / under cost my product and allows me to manage my company with efficiency and effectiveness ? It is the question that all of us entrepreneurs ask ourselves and it is what I state below:
Steps to design a good ABC system
- Identify activities Identify Cost concepts of activities Determine cost drivers or cost drivers Assign costs to activities Assign costs of activities to materials and product Allocation of direct costs to products
In order to identify the activities we must first classify them and this classification is defined as follows:
According to their performance regarding the product:
- At the product level (painting a vehicle) At the batch level (machine preparation) At the product line level (Organize labor) At the company level (Administration)
According to frequency:
- Repetitive (prepare materials) Non-repetitive (Improve Design)
According to the ability to add value to the product:
- That add value to the product (perfect finish) That do not add value to the product (Redo a product)
Driver
In order to assign a cost to a product, the factor must be taken into account, choosing this measurable and clearly identifiable factor that allows me to assign costs to a center, activity and product.
conclusion
The ABC costing system is more than a tool to properly manage resources and activities for the execution of a business objective, its information is vital for decision-making by all organizational entities and is used to analyze the costing of products and services., to analyze processes, management evaluation, profit monitoring and to perform value-based administration.
