Costing activities

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* Costing ABC activities

* Objectives

* Importance of managerial costing system ABC

* The steps to achieve the ABC, are:

* Conclusions

* Bibliography


In recent years quite acceptance, has been considered a new method for defining the costs of products and services, which is based on the quantification of production activities, operational and administrative provisions necessary in the development and sale thereof, thus representing an alternative applicable to operations not only productive but administrative or support. Under this new approach, the allocation bases used in the determination of indirect costs and some administrative costs are units of measurement determined by the most significant operational activities undertaken during the production process, as would the number of assembly parts, hours of preparation input, in the case of administrative activities can be defined by the number of employees served by the area occupied by the time commitment, the number of telephone lines available. The allocation bases used in the methodology of Activity Based Costing, for the distribution of the costs and expenses of processes to support productive activities and operational costs are called generators or DRIVER. The quality and reasonableness of Activity Based Costing lie in the definition of an appropriate allocation basis for each support or administrative process, the activities of these processes may depend on the amount of items or services produced, such as production planning, enlistment of machinery and inventory movements, which are long-term variable costs depending on the number of activities, others depend on the production volume and complexity in the development of products or services, as would be the assembly and cutting Direct production processes, these are short-term variables because their allocation depends on man or machine hours worked.

In English it is called A.B.C Costing System. This method based cost “activities and, (to be added), levels of responsibility”, is just focus or expand the delivery system and Levels of Responsibility Areas (known as “management by objectives”, since 1954), the Production Costs area and change or take another approach and structure the allocation of indirect manufacturing costs, exclusively.


The costing activities appears in the mid 80’s, its promoters: Robin Cooper and Robert Kaplan, determining the cost of products should include the cost of the activities necessary to manufacture and sell and the cost of raw materials.

The method of “activity-based costing” (ABC) measures the cost and performance of activities, based on the use of resources, and organizing the relationships of those responsible for the cost centers of the different activities.

The Activity Based Costing, Costing ABC, is a procedure that aims for the correct ratio of overhead costs and administrative expenses with a product, service or specific activity, through proper identification of those activities or support processes, use base-driver-allocation and reasonable measurement in each of the objects or units costing.

The ABC model allows greater accuracy in the allocation of corporate costs and allows them to view activity, defined as activity defined in the text of the Masters in Business Administration from MG Jaime Humberto Solano “makes a company, how time is consumed and the outputs of the processes, ie transform resources (materials, labor, technology) into outputs “.

Other ideas from other authors point to the activity as action or set of actions that are performed on the company to obtain a good or service. They are the accumulation of kernel costs.

The fundamental objectives of Activity Based Costing are:

* Measure the costs of resources used to develop the activities in a business or entity.

* Describe and apply conceptual development showing its scope in management accounting.

* Being a performance measure that will improve satisfaction goals and eliminate waste in operating activities.

* Provide tools for business planning, profit determination, control and cost reduction and strategic decision making.

The benefits of the method of “activity-based costing” (ABC) are:

* Clearly view, the achievements of the costs of products and discover the flaws in resource allocations, therefore, cost.

* Specify how to value or not activities

* Reliable information to support strategic decisions.

* Encourages teamwork in the areas of production and accounting, because without it, you can not have a clear idea of Production Engineering and Cost diversity, interaction emerging areas.

* Identifies and accurately the costs of each activity.

* To achieve the above point, you need a review of structure, in terms of “areas and levels of responsibility” of the Organization.

Importance of managerial costing system ABC

* This model is not a model management and accounting.

* The resources consumed by activities and these in turn are consumed by cost objects (outputs).

* Consider all the costs and expenses as resources.

* Displays the company and set of activities and / or processes rather than a departmental hierarchy.

* It is a methodology that assigns costs to products or services based on consumption activities.

The steps to achieve the ABC, are:

* Analyze and identify support activities that contribute to making the “Service Apartments” (the production and general) by the authors called “indirect departments.”

* Form groups of homogeneous costs (costs of each group, based on an activity) valundolas, activities separately. A classic argument in which the authors are based ABC, is that they say, “are not the products but the activities, who cause the costs, and the articles are manufactured absorb those activities. Contradicting the first part with the second, as products originating activities, so it is logical that absorb those costs, according to the “origin principle and profit”, which is unobjectionable.

* Locate the “Measures of Activity”, identifying them in “units of activity”, that best apply the origin and cost variance reference. These measures, in the English language are known as “Cost Drivers” in Castilian might be “Gene-ra-tion of Cost” or “Cost Source”.

* It should now get the “unit cost of each activity to Provide Manufacturing Process”, dividing the total cost of each activity between the “number of activity units consumed” in the “Measure activity identified”.

* Identify the “number of units of activity”, consumed by each product.

* Application of indirect manufacturing costs for goods made by multiplying the “Unit Cost of Providing Every Activity”, by the number of “units of activity” occupied for each product.

Cost allocation by this method is given in two stages where the first is to accumulate the CIF cost centers with the difference not only in centers that use more traditional methods but they take another name called ACTIVITIES. In the second stage the costs are assigned to the jobs according to the number of activities required to complete.

The method for obtaining ABC cost covers only one element of the cost of production, ie the indirect manufacturing costs. The operating cost involved in obtaining importantly profits or cause losses.

One goal is to raise awareness of ABC Organization, and in particular to senior management, how important are the Departments of “Indirect Service” issue has always been known, as if they were unnecessary, they had disappeared or minimized, as happens with inventories using “just in time”, but you can always apply.

With ABC obtained “product unit costs much more accurate and useful.”

The ABC method is not useful if it deals only for obtaining costs because they fall short in the most important decision-making and strategic planning and direction, which affect the life of the Company, since ABC is far Total Cost of reach, or approach: Integral Cost-set.

The method uses something that has been harshly criticized the Traditional Cost: apportionments.

The ABC has a mirage to allocate prorroterar, or identify production overheads to activities, but in reality, to the manufacturing unit apportionments may have increased, and then be applied to a much larger amount, then put everything in activities, the unit is made indirect and therefore are indispensable apportionments presenting less true that traditional cost, relative to the unit.

The origins of the Cost, occupied by the traditional cost method, have been the production volume, the unit made or to be made, and the time, however, the ABC method, recognized or proposed many other “Origins of Cost” according activities, ie adds the aspect “Activity”, which explains the behavior from that point of view, which had not been considered in the traditional method, it does not mean it is correct to the unit cost of manufacturing, for all the subjective characteristics, or gotten basis in each of the steps to obtain the unit cost of manufacturing the ABC method, which is not happening with the Method of Integral Cost-set, besides the “Origin Cause” takes consider the “effect” and not intended by the ABC method.

The ABC has made contributions as the need to understand the causes of indirect manufacturing costs. And has both administrative cost, which leads to the need to make, to him, the study of Cost-Benefit-Utility.

The ABC method analyzes, identifies, groups activities; locates “Activity Measures” in the “units of activity”, that best explain the origin and variation of indirect manufacturing costs; gets the “unit cost” of provide each activity the process by dividing the total cost of indirect manufacturing costs of each activity, the number of units consumed activities, unit of measure recognized; identifies the “Activity Number of units” consumed by each product, to finally apply overhead to articles produced by multiplying the “Unit Cost of Providing each Activity”, by the number of units of each product activity.

Specifically, the ABC method, is the logical process of grouping activities, to clarify the authority, establishing working relationships, so that both the story Entity staff achieve their goals.


The ABC costing system has arisen because traditional costing systems have failed to distribute all costs properly. Thus arises ABC, which allocates costs to activities relying on criteria called “drivers”. Then ABC helps relate the costs and activities that cause.

The goal of ABC is to provide information for decision-making, to analyze the costing of products, services and processes and measure costs of resources used to increase revenue, productivity and efficiency in the use of these resources.

Therefore, the ABC method helps organizations obtain better information about its processes and activities to improve their operations.

The ABC integrates all the information necessary to carry out the company (destroys the barriers that separate financial information from the rest of the data). Provides competitive advantage and improves the performance of the company employing this method.



* Cost Accounting. Foster. Prentice Hall


* Costs III. Del Rio Gonzalez, Christopher. Editorial Ecafsa.


Lily Bernal