How can you use activity-based costing to identify areas of waste in your organization?

Instead of just lumping costs together, ABC breaks them down based on activities. For ex: in a company making cakes, ABC would show how much each step like mixing,baking,and decorating costs. This helps companies see where they're spending the most money and where they can save. ABC is useful because it gives a more accurate picture of costs, helping businesses make smarter decisions.By knowing the costs of each activity, companies can price their products more competitively. Plus, it helps in allocating resources more efficiently, focusing on what drives costs rather than just looking at overall expenses. In short, ABC helps businesses understand their costs better, make more informed decisions, and ultimately, improve their profitability.

In modern Costing, ABC Costing is one of the main useful tool. Rather then allocation based on unrelated overhead observation rate we use here relevant cost driver. Lets assume if we allocate Overheads on the based of labor hour what's happens if we are automated industry less labor intensive it will give us unrealistic value who will effect our decisions If we move to ABC the the relevant cost driver of each category of ABC help us to better identification of our core efficient areas and core under consideration areas. Waste once identified will be reduced/ eliminated.

ABC is acurately described here. having seen ABC applied in practice however I'm not convinced it is as useful as the theory suggests. The cost and effort of maintaining accurate rates for each activity aswell as the arbitrary allocation of left over variances make it less useful in my eyes. Any company thinking about implementing ABC should get an accurate picture of how much effort it takes to run the ABC method and how much more accurate this method is compared to existing costing practices.

While using ABC has benefits, such as more precise cost allocation, improved process efficiency, and better decision-making, it also has drawbacks, such as the potential for increased complexity and costs. ABC might be most appropriate for companies with complex and diverse production processes or high overhead costs.

o custeio baseado em atividades (ABC - Activity-Based Costing) pode ser uma ferramenta útil para identificar áreas de desperdício em uma organiza??o. O ABC é um método de contabilidade de custos que atribui custos às atividades realizadas pela organiza??o com base no consumo de recursos. custeio baseado em atividades pode ser uma ferramenta poderosa para identificar e reduzir desperdícios em uma organiza??o, fornecendo uma compreens?o mais profunda dos custos e atividades envolvidos em seus processos.

To implement Activity-Based-Costing in an organization, you must first identify all drivers of cost relevant to each activities. Then isolate each cases one by one and allocate costs ro each activities.

To implement ABC, identify cost-incurring activities and categorize them into groups like production, administration, marketing, and distribution. Then, determine cost drivers for each activity, influencing their frequency and amount. Calculate cost per unit of each cost driver by dividing total activity cost by total driver units. Finally, allocate costs to products or services based on their consumption of each cost driver, multiplying cost per unit by units consumed per product or service.

A implementa??o bem-sucedida do ABC requer o comprometimento da alta administra??o. Eles devem entender os benefícios potenciais do ABC e apoiar o processo de implementa??o. O primeiro passo é identificar todas as atividades realizadas pela organiza??o. Isso pode incluir atividades relacionadas à produ??o, distribui??o, atendimento ao cliente, suporte administrativo, entre outras. Após identificar as atividades, é importante mapear os processos envolvidos em cada uma delas. O ABC envolve a aloca??o de custos indiretos às atividades com base no consumo de recursos. Isso pode exigir a coleta de dados detalhados sobre o uso de recursos, como m?o de obra, máquinas, espa?o físico, entre outros.

Ways through which Activity-Based Costing (ABC) method helps in identifying waste. 1. ABC helps identify activities that consume excessive resources compared to their contribution to the final product or service. 2. ABC highlights activities that are redundant in the production process. You can identify tasks that can be eliminated or streamlined without affecting the quality of the final product. 3. ABC reveals areas where capacity is underutilized, leading to inefficiencies and wasted resources. 4. ABC can highlight activities related to rework or defect rectification, which increase costs and reduce efficiency. This could involve investing in training, improving quality control processes.

Analisar varia??es de custo: O ABC também permite analisar varia??es nos custos das atividades ao longo do tempo. Isso pode ajudar a identificar tendências e padr?es de desperdício, permitindo a implementa??o de medidas corretivas. Ao seguir essas etapas, o ABC pode ser uma ferramenta poderosa para identificar e reduzir áreas de desperdício em uma organiza??o, contribuindo para a melhoria da eficiência operacional e da rentabilidade.

As I worked in the F&B sector, in order for us to apply the ABC Method, we must map all activities from procurement to customer service. Assign costs to activities like ingredient sourcing, cooking, and delivery, based on their resource consumption. Identify cost drivers, such as the number of deliveries or meal preparations. Analyze activities for inefficiency—high costs but low value-add—like excessive food waste in preparation or underutilized delivery routes. ABC pinpoints where resources are wasted, guiding actions to streamline operations, reduce waste, and optimize menu pricing for better profitability.

Controlling costs is a very important benefit, but activity-based costing (ABC) gives you a bigger picture. By showing how much different activities cost, ABC helps everyone in the organization make smart decisions. Beyond finding cost drivers, ABC does more. It can also be utilized to streamline procedures and boost productivity, which will eventually result in lower costs and higher profits. ABC allows for the analysis of customer profitability. It helps you find and focus on your most valuable customers, increasing each customer's value over time. Many factors affect financial achievement. ABC can boost your company's profits by providing insights and facilitating strategic decision-making.

Ao analisar a rentabilidade por produto ou servi?o, você pode identificar áreas onde os custos podem ser reduzidos sem comprometer a qualidade ou o valor para o cliente. Isso pode incluir a elimina??o de atividades que n?o agregam valor, a otimiza??o de processos ou a renegocia??o de contratos com fornecedores. A otimiza??o da rentabilidade é um processo contínuo. Monitore regularmente os custos e a rentabilidade de seus produtos e servi?os e revise suas estratégias conforme necessário para garantir que você esteja maximizando seus lucros de forma sustentável.

After identifying waste through the ABC method, optimize profitability by addressing inefficiencies directly. For activities with high costs but low value, such as redundant processes, streamline or automate them. Review and adjust the pricing of products or services based on their true cost-to-profit ratios, ensuring each contributes positively to the bottom line. Reallocate resources from underperforming areas to those with higher returns or growth potential. Implement continuous improvement practices to maintain efficiency, such as regular reviews of cost drivers and operational processes. Investing savings from these optimizations into innovation or market expansion can further drive revenue growth and enhance profitability.

To find and fix waste in your business, use activity-based costing (ABC) along with lean methods, mapping processes, team events, giving power to workers, using tech, working with suppliers, setting clear goals, and asking customers. ABC helps see where money goes, lean methods cut waste, mapping processes shows problems, team events make things better fast, giving power to workers gets more ideas, tech helps work faster, suppliers can help too, goals show how well things are going, and asking customers makes sure they're happy. Doing these things makes your business better, saves money, and gets more done.

Podemos considerar o exemplo de ABC Setor de Servi?os Financeiros. Um banco identifica atividades como processamento de transa??es, atendimento ao cliente, avalia??o de risco e análise de crédito. Os custos indiretos, como custos de tecnologia da informa??o e custos administrativos, s?o atribuídos a cada atividade com base em drivers de custo relevantes, como número de transa??es processadas ou número de clientes atendidos. Os custos das atividades s?o ent?o atribuídos a diferentes produtos ou servi?os bancários, como contas correntes, empréstimos ou investimentos. A análise ABC revela quais produtos ou servi?os consomem mais recursos do banco, permitindo que a institui??o financeira ajuste sua oferta para maximizar a rentabilidade.