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Fabrici Management Consulting delivers results that help our Clients to succeed in their work and initiatives.

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We use our expertise and experiences to support our Client's Business to assure their sustainable growth and profit.We serve the Clients with full range of Consulting Services in Strategy, Sales & Marketing, Operations, Risk and Information Technology.

Activity Based Costing

In the past, the vast majority of companies used direct labour hours as the only cost driver for applying costs to products. But direct labour hours is not a very good measure of the cause of costs in modern, highly automated organizations.

Labour-related costs in an automated system may be only 5 percent to 10 percent of the total costs and often are not related to the causes of most overhead costs. However, some managers mostly in service companies believe it is inappropriate to allocate all costs based on measures of volume. Using direct labor hours or cost as the only cost driver seldom meets the cause/effect criterion desired in cost allocation. If many costs are caused by non-volume-based cost drivers, Activity-Based Costing (ABC) should be considered.

Activity-based costing (ABC) systems first accumulate overhead costs for each of the activities of an organization, and then assign the costs of activities to the products, services, or other cost objects that caused that activity. To establish a cause-effect relationship between an activity and a cost object, cost drivers are identified for each activity

Cost-driver activity is measured by the number of transactions involved in the activity. For example, service costs are caused by change orders (a document detailing a requirement change demanding attention of the servicing department). Therefore, servicing costs are assigned to products in proportion to the number of servicing change orders issued for each product.

Because transactions are often used for assigning costs of activities to cost objects, activity-based costing is also called transaction-based accounting or transaction costing.

 

Hot News

October 2015 - Fabrici Management Consulting has signed a Contract to deliver Enterprise Application Integration for Transpetrol, a.s.

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Septebmer 2015 - Fabrici Management Consulting has signed a Consulting Contract with Poštová Banka, a.s.

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