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Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
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Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced.
This is the case study of the subject Managerial Accounting. It deals with the Break Even point. The analysis is basically on the break -even analysis for the multiple products. We have done the full analysis and the solution is in the presentation.
Achal Raghavan's case analysis (along with those from other authors) published in Vikalpa (the IIM Ahmedabad journal) in Oct-Dec 2007. Deals with the challenges faced by Infosys in transitioning from low-end system maintenance jobs to high-end consulting / solutions projects. The analysis includes a strategy recommendation. Though published several years back, the analysis is especially relevant now, when the "Infosys 3.0" growth strategy is under increasing scrutiny.
Analysis of BMW mini case from Kotler's Marketing Management textbook.
This presentation was created by Shashank Srivastava, IET Lucknow during a Marketing internship under the guidance of Prof. Sameer Mathur, IIM Lucknow.
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced.
This is the case study of the subject Managerial Accounting. It deals with the Break Even point. The analysis is basically on the break -even analysis for the multiple products. We have done the full analysis and the solution is in the presentation.
Achal Raghavan's case analysis (along with those from other authors) published in Vikalpa (the IIM Ahmedabad journal) in Oct-Dec 2007. Deals with the challenges faced by Infosys in transitioning from low-end system maintenance jobs to high-end consulting / solutions projects. The analysis includes a strategy recommendation. Though published several years back, the analysis is especially relevant now, when the "Infosys 3.0" growth strategy is under increasing scrutiny.
Analysis of BMW mini case from Kotler's Marketing Management textbook.
This presentation was created by Shashank Srivastava, IET Lucknow during a Marketing internship under the guidance of Prof. Sameer Mathur, IIM Lucknow.
Few people would start a journey with a map that shows neither where they are nor where they are going. Yet many companies seek to compete without knowing the true cost, and profit, of their products or services, and customers.
Directors often base corporate strategy on misleading information that supports bad decisions. This only helps competitors. Traditional financial information systems measure a company’s performance only in the aggregate.
They may not help to find opportunities to increase competitiveness in the market place.
To create more value and enhance their profitability, organisations in manufacturing and service require accurate information on costs. Activity Based Costing (ABC) can provide it. But organising an effective ABC initiative is not as simple as opening a book and beginning at Chapter One.
Q.2 steps required to implement ABC within the companyABC Costing .pdfanjalipub
Q.2 steps required to implement ABC within the company
ABC Costing is a supplemental method of cost accounting that provides the decision-making
information absent from traditional costing methods. While ABC costing is not limited by
business unit boundaries, it can not fully supplant traditional costing methods as it often fails to
meet financial reporting requirements for businesses.
ABC Costing focuses on costs contributing to production of a product. It does not attribute other
general costs that do not have at least an indirect relationship to the product. While traditional
costing systems focus on direct costs and burden a product with other fixed costs, activity based
costing increases accuracy of indirect cost assignment.
In their 1999 book, Managerial Accounting, Garrison and Noreen identify six core steps to ABC
costing implementation.*
Implementation Steps
Step #1: Activity Identification
First, activities must be identified and grouped together in activity pools. Activity pools are the
supporting activities that tie in to a product line or service These pools or buckets may include
fractionally assigned costs of supporting activities to individual products as appropriate during
the second step.
Step #2: Activity Analysis
ABC continues with activity analysis, clearly identifying the processes which support a product
and avoiding some of the systemic inaccuracies of traditional costing. ABC costing requires
activity analysis, similar to the process mapping found in lean manufacturing.
This activity analysis identifies indirect cost relationships and allows assignment of some
percentage of that activity to an end product directly.
Step #3: Assignment of Costs
Based on the findings of step #1 and #2, costs are assigned to an activity pool. For example,
human resources costs would be assigned to indirect administrative or indirect management
costs. These pools will each have some contribution to object cost.
Step #4: Calculate Activity Rates
Initial analysis may include direct labor hours, or indirect support labor. These activities must be
assigned a value in real currency. All weightings must be added at this step. For instance,
production labor hours should be in terms of a weighted labor rate including benefit costs.
Step #5: Assign Costs to Cost Objects
Once activity costs, pools and rates are identified and clearly defined, the next step is to assign
them to cost objects. Objects are generally defined as the results offered to a customer. In both
manufacturing and non-manufacturing environments, this product should have some saleable
value to compare to the assigned costs.
Step #6: Prepare and Distribute Management Reports
Once ABC costing analysis is complete, that cost data should be placed in a concise and coherent
manner for cost object and process owners. This communication of the costing analysis is critical
to justify the cost of the analysis, as often this is not an inconsequential cost.
Q.3our classifications of the ABC .
activity_based_costing power point presentationChamodiBandara1
Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product.
Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.
KEY TAKEAWAYS
Activity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.
An activity is a cost driver, such as purchase orders or machine setups.
The cost driver rate, which is the cost pool total divided by cost driver, is used to calculate the amount of overhead and indirect costs related to a particular activity.
ABC is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.
This costing system is used in target costing, product costing, product line profitability analysis, customer profitability analysis, and service pricing. Activity-based costing is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.
The formula for activity-based costing is the cost pool total divided by cost driver, which yields the cost driver rate. The cost driver rate is used in activity-based costing to calculate the amount of overhead and indirect costs related to a particular activity.
The ABC calculation is as follows:
Identify all the activities required to create the product.
Divide the activities into cost pools, which includes all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool.
Assign each cost pool activity cost drivers, such as hours or units.
Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.
Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.
Multiply the cost driver rate by the number of cost drivers.
As an activity-based costing example, consider Company ABC that has a $50,000 per year electricity bill. The number of labor hours has a direct impact on the electric bill. For the year, there were 2,500 labor hours worked, which in this example is the cost driver. Calculating the cost driver rate is done by dividing the $50,000 a year electric bill by the 2,500 hours, yielding a cost driver rate of $20. For Product XYZ, the company uses electricity for 10 hours.
Cost accounting is the process of recording, classifying, analyzing, summarizing, and allocating costs associated with a process, and then developing various courses of action to control the costs.
Chatty Kathy - UNC Bootcamp Final Project Presentation - Final Version - 5.23...John Andrews
SlideShare Description for "Chatty Kathy - UNC Bootcamp Final Project Presentation"
Title: Chatty Kathy: Enhancing Physical Activity Among Older Adults
Description:
Discover how Chatty Kathy, an innovative project developed at the UNC Bootcamp, aims to tackle the challenge of low physical activity among older adults. Our AI-driven solution uses peer interaction to boost and sustain exercise levels, significantly improving health outcomes. This presentation covers our problem statement, the rationale behind Chatty Kathy, synthetic data and persona creation, model performance metrics, a visual demonstration of the project, and potential future developments. Join us for an insightful Q&A session to explore the potential of this groundbreaking project.
Project Team: Jay Requarth, Jana Avery, John Andrews, Dr. Dick Davis II, Nee Buntoum, Nam Yeongjin & Mat Nicholas
Data Centers - Striving Within A Narrow Range - Research Report - MCG - May 2...pchutichetpong
M Capital Group (“MCG”) expects to see demand and the changing evolution of supply, facilitated through institutional investment rotation out of offices and into work from home (“WFH”), while the ever-expanding need for data storage as global internet usage expands, with experts predicting 5.3 billion users by 2023. These market factors will be underpinned by technological changes, such as progressing cloud services and edge sites, allowing the industry to see strong expected annual growth of 13% over the next 4 years.
Whilst competitive headwinds remain, represented through the recent second bankruptcy filing of Sungard, which blames “COVID-19 and other macroeconomic trends including delayed customer spending decisions, insourcing and reductions in IT spending, energy inflation and reduction in demand for certain services”, the industry has seen key adjustments, where MCG believes that engineering cost management and technological innovation will be paramount to success.
MCG reports that the more favorable market conditions expected over the next few years, helped by the winding down of pandemic restrictions and a hybrid working environment will be driving market momentum forward. The continuous injection of capital by alternative investment firms, as well as the growing infrastructural investment from cloud service providers and social media companies, whose revenues are expected to grow over 3.6x larger by value in 2026, will likely help propel center provision and innovation. These factors paint a promising picture for the industry players that offset rising input costs and adapt to new technologies.
According to M Capital Group: “Specifically, the long-term cost-saving opportunities available from the rise of remote managing will likely aid value growth for the industry. Through margin optimization and further availability of capital for reinvestment, strong players will maintain their competitive foothold, while weaker players exit the market to balance supply and demand.”
Levelwise PageRank with Loop-Based Dead End Handling Strategy : SHORT REPORT ...Subhajit Sahu
Abstract — Levelwise PageRank is an alternative method of PageRank computation which decomposes the input graph into a directed acyclic block-graph of strongly connected components, and processes them in topological order, one level at a time. This enables calculation for ranks in a distributed fashion without per-iteration communication, unlike the standard method where all vertices are processed in each iteration. It however comes with a precondition of the absence of dead ends in the input graph. Here, the native non-distributed performance of Levelwise PageRank was compared against Monolithic PageRank on a CPU as well as a GPU. To ensure a fair comparison, Monolithic PageRank was also performed on a graph where vertices were split by components. Results indicate that Levelwise PageRank is about as fast as Monolithic PageRank on the CPU, but quite a bit slower on the GPU. Slowdown on the GPU is likely caused by a large submission of small workloads, and expected to be non-issue when the computation is performed on massive graphs.
Techniques to optimize the pagerank algorithm usually fall in two categories. One is to try reducing the work per iteration, and the other is to try reducing the number of iterations. These goals are often at odds with one another. Skipping computation on vertices which have already converged has the potential to save iteration time. Skipping in-identical vertices, with the same in-links, helps reduce duplicate computations and thus could help reduce iteration time. Road networks often have chains which can be short-circuited before pagerank computation to improve performance. Final ranks of chain nodes can be easily calculated. This could reduce both the iteration time, and the number of iterations. If a graph has no dangling nodes, pagerank of each strongly connected component can be computed in topological order. This could help reduce the iteration time, no. of iterations, and also enable multi-iteration concurrency in pagerank computation. The combination of all of the above methods is the STICD algorithm. [sticd] For dynamic graphs, unchanged components whose ranks are unaffected can be skipped altogether.
3. Executive Summary
• Activity-Based Costing (ABC) represents an alternative paradigm to traditional cost accounting system
and it often provides more accurate cost information for decision making such as product pricing,
product mix, and make-or buy decisions. ABC models the causal relationships between products and
the resources used in their production and traces the cost of products according to the activities
through the use of appropriate cost drivers.
•
• In this project, the costing system followed by NESTLE is compared with ABC in terms of the effects on
the product costs that are carried out to highlight the difference between two costing methodologies.
By using this methodology, a valuable insight into the factors that cause the cost is provided, helping
to better manage the activities of the company.
•
• According to the study, Nestle follows traditional method for costing that assign overheads directly to
the product. Cost of the product UC Range series 4 end cover is found out by Activity Based costing
and is compared with the traditional method followed by Nestle to arrive at the cost of the above
product. The study states that the product is being over cost by the company.
•
• Nestle should go for Activity Based Costing as it understands true profitability of the customers,
products or services and also helps in identifying areas where the cost can be reduced or efficiencies
can be increased
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4. Objectives of Report
• Nestlé's business objective is to manufacture and market the Company's products in such a
way as to create value that can be sustained over the long term for shareholders,
employees, consumers, and business partners.
• Nestlé does not favour short-term profit at the expense of successful long-term business
development.
• Nestlé recognizes that its consumers have a sincere and legitimate interest in the behaviour,
beliefs and actions of the Company behind brands in which they place their trust and that
without its consumers the Company would not exist. So the needs & wants of consumers
should be considered.
• Nestlé believes that, as a general rule, legislation is the most effective safeguard of
responsible conduct, although in certain areas, additional guidance to staff in the form of
voluntary business principles is beneficial in order to ensure that the highest standards are
met throughout the organization.
• Nestlé is conscious of the fact that the success of a corporation is a reflection of the
professionalism, conduct and the responsible attitude of its management and employees.
Therefore recruitment of the right people and ongoing training and development are
crucial.
• Nestlé continues to maintain its commitment to follow and respect all applicable local laws
in each of its markets.
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5. DATA COLLECTION &RESEARCH METHOD
• Peter Atrill & Eddie McLaney (2011) "Management Accounting for Decision
Makers". Published by Prentice Hall
• Kaplan & Anderson (2001) "Time Driven Activity Based Costing - A simpler more
powerful path to profitability", published by Harvard Publications.
About Technique
Activity-based costing (ABC) is an accounting process that
enables Nestle to assign overhead activities costs of the firm to
the specific products and services it produces & delivers.
Compare to the traditional process, ABC assigns the overheads
and indirect costs less arbitrarily and focuses on true
relationship between costs, overhead activities, and related
products (manufactured, produced) / services delivered by
Nestle.
6. IMPLEMENTATION OF ABC ACCOUNTING
METHOD IN NESTLE COSTING PROBLEMS
Nestle markets two types of products in the Food Processing industry. For sake of simplicity let us call
them Consumer/Non-Cyclical Standard product and Consumer/Non-Cyclical Custom Product. Standard
Product is lot simpler than Custom Product, so Nestle produces Standard product in large batch sizes
compare to Custom product which is produced in smaller batch sizes.
Nestle Standard Product Nestle Custom Product
Annual Sales (Units) 11533 12558
Sales Price (Per Unit) 70 USD 84 USD
Batch Size (units) 1000 50
Direct Labor Time / per unit 2 2.5
Direct Labour rate per hour 8 8
Direct Input cost per unit 22 32
Number of Custom Parts per unit 1 4
Number of Set-Ups per batch 1 3
Separate Material per batch 1 1
Number of Sales Invoices - issued per year 50 240
Overhead Cost Analysis USD Cost Drivers
Set Up Costs 72831 Number of Set Ups
Special part handling cost 60061 Number of Special Parts
Customer invoicing cost 28842 Number of Invoices
Material handling cost 62409 Number of Batches
Other overheads 106540 Labor Hours
7. Solution Based on Traditional Approach of Costing
the answer is no difference at all. ABC is concerned only with the way in which overheads are
charged to job to derive the full cost
How direct costs are treated in ABC? Is it different from the way it is treated under traditional
approach?
• Traditional Approach - Absorption Approach
The difference between the traditional method and ABC can be only noticed when there are different types of
products produced by Nestle and indirect costs comprise a significant chunk of the overall cost structure of
Nestle.
One of the key reasons why small firms still use traditional method is its sheer simplicity. ABC can be highly
complex if the firm is present in number of industries and, produce & market various products around firm's
core competency
8. Step 1 - Calculating Overhead Recovery Rate of Indirect Costs
Overhead Cost Analysis USD
Set Up Costs 72831
Special part handling cost 60061
Customer invoicing cost 28842
Material handling cost 62409
Other overheads 106540
Total Overheads (1+2+3+4+5) 330683
To calculate the "Overhead Recovery Rate" add up all the indirect costs that Nestle is
incurring for both the standard and custom product.
• Overhead Recovery Rate Formula
Overhead Recovery Rate = Total Overheads / Number
of Labor Hours
Overhead Recovery Rate = 6.07 per Hour
9. Step 2 - Product / Service Costs - Adding Direct and Indirect Costs
Standard Product Custom Product
Direct Costs
Labor
Hrs * Labor/hr
16 20
Material 22 32
Indirect Costs
Overheads (recovery rate * hours) 12.14 15.175
Total Costs Per Unit (1+2+3) 50.14 67.175
Using the Overhead Recovery Rate Calculation we can assign the indirect cost to individual
products. We are just allocating the variable or indirect costs based on the hours taken by
labour to produce the standard and custom products.
Total cost per unit under the traditional method can be calculated by adding up - Raw material
costs, labour costs, and indirect cost allocation using Overhead Recovery Rate formula.
The Total Cost per unit of Standard product is 50.14
The Total Cost per unit of Custom product is 67.175
10. Return on Sales Calculations for Nestle
Standard Product Custom Product
USD per Unit USD per Unit
Selling Price 70 84
Total Cost 50.14 67.175
Profit 19.86 16.825
Return on Sales 28.37 20.03
Return on Sales metrics enables the firm to allocate resources where it can
maximize returns. After subtracting the cost per unit of the product from sales
price of the product we can arrive at the profit per unit.
The profit per unit of standard product is higher than custom product. In isolation these
numbers don't provide a great insight as price is often the function of competitive
forces in the market place. To explore further we should analyse - Return on Sales per
unit.
11. Activity Based Costing System for Nestle
• Activity Based Costing can improve the costing process at Nestle in three
prominent ways –
By increasing the number of cost pools – ABC help in identifying the
activities that are being performed by organization’s resources. Often too
narrow allocation can result in unclear understanding of both activities and
how resources spent on them.
•
By assigning costs to various activities that are segmented based on the
role they perform in overall processes. Instead of treating all indirect costs
as one organization wide pool, ABC pools the costs based on each activity.
Finally assigning costs to respective products, service and customers
activities in the organization using activity cost drivers.
12. How to calculate Activity Based Costing & What
is the formula for Activity Based Costing?
• After identifying all the support activities and associated costs & factors
that drive those cost, managers at Nestle can take following steps to
conduct ABC costing -
Step 1- Establishing Cost Pool for each activity based on the Food
Processing dynamics.
Step 2 - Allocating total cost associated with each activity to the relevant
pool.
• Step 3- calculating per Unit Cost based on the relevant cost driver.
Step 4 Final Step - Dividing the amount in each pool by estimated total
usage of the cost driver. Then the unit cost is multiplied by the number of
units of the cost driver of that specific product.
13. You can easily follow the above four steps in the
following table of ABC Calculations.
Overhead
Cost Driver
(a)
Standard
Diver
Volume
(b)
Custom
Diver
Volume
(c) Total
Diver
Volume
a+b
(d)
Costs
USD
(e) Driver
Rate (d/c)
(f) Standard Total
Cost a*e
(g) Custom Total
Cost b*e
Standard Unit
Costs
Custom Unit
Costs
Set Up CostsSet-up
per
Batch
12 720 732 72831 99.49590163
9344
1193.9508196721 71637.049180328 0.10352473941491 5.7044950772677
Special part
handling
cost
Special
Parts
per unit
11533 50232 61765 60061 0.972411559
94495
11214.822520845 48846.177479155 0.97241155994495 3.8896462397798
Customer
invoicing
cost
Invoices
per year
50 240 290 28842 99.45517241
3793
4972.7586206897 23869.24137931 0.431176504005 1.9007199696855
Material
handling
cost
Number
of
Batches
11.533 251.16 262.693 62409 237.5738980
4829
2739.939766191 59669.060233809 0.23757389804829 4.7514779609658
Other
overheads
Labor
Hours
23066 31395 54461 106540 1.956262279
4293
45123.145737317 61416.854262683 3.9125245588586 4.8906556985733
14. ABC Calculations
Per Unit Overhead Cost using ABC
Overhead Unit Cost Standard Custom
Set Up Costs 0.10352473941491 5.7044950772677
Special part handling cost 0.97241155994495 3.8896462397798
Customer invoicing cost 0.43 1.9
Material handling cost 0.23757389804829 4.7514779609658
Other overheads 3.9125245588586 4.8906556985733
Total Overheads 5.66 21.14
There are two steps to calculate per unit overhead costs using ABC method. First
calculate per unit cost based on cost driver usage by specific product and then add
those overhead costs for the product to arrive at Per Unit Overhead Cost of a
product
The total overheads of standard unit using ABC costing is 5.66 and the
overheads of custom unit uning ABC costing method is 21.14
15. Total Cost Using ABC Technique
Standard Product Custom Product
Direct Costs
Labor
Hours * Cost of Labor per Hours
16 20
Material 22 32
Indirect Costs
ABC- Overhead 5.66 21.14
Total Costs Per Unit
(1+2+3)
43.66 73.14
The total cost per unit of standard and custom product
can be calculated by adding up - direct cost, raw material
cost, and ABC derived per unit indirect cost.
The Total Cost per unit of Standard product is 43.66
The Total Cost per unit of Custom product is 73.14
If we compare the total costs using traditional method and ABC method, we can easily
observe that the difference between the total cost of custom product to that of standard
product is far higher under ABC method than it is under the tradtional method.
16. Return on Sales Using ABC Costing Analysis
Standard Product Custom Product
USD per Unit USD per Unit
Selling Price 70 84
Total Cost 43.66 73.14
Profit 26.34 10.86
Return on Sales 37.63 12.932
The profit per unit of standard product is higher than custom product under ABC
technique. By comparing the Return on Sales numbers under both traditional and ABC
technique - We can easily conclude that ABC is far more effective costing technique for
Nestle as it stops inefficient allocation of costs to Standard product. Nestle should focus
on standard product rather than custom product as standard product is delivering much
higher returns on sales.
17. Limitations of ABC Costing Method
• ABC is time consuming and costly.
• Setup costs and updating cost for example in the automobile
industry is very high and ABC fails to inculcate it.
• Business with similar product and services output that require
similar activities then the benefits from ABC are very limited.