A flow diagram on how we arrived at product cost using ABC:

Step-7: Calculate rate per unit of cost driver   The rate per unit of cost driver can be calculated using the following formula: Cost of Activities (step 5)/ Volume of activities (Step 6)     Using the above formula the rate per unit of cost driver for each of the identified operating activities is given […]

Step-5: Allocate/assign support activities costs to operating activities   The support activity costs need to be allocated to operating activities. And later the total cost of operating activities) will be allocated to products (cost objects). Any of the following three methods can be used practically for allocating support activity costs. Here we are showing all […]

This article is based on logic that goes behind the product profitability using activity based management/costing in a manufacturing plant that makes medicines. R&D costs will not be shown since this company pays royalties to licencor to utilize the formula/licensed technology. Step-1: Define/ identify line items on the ledgers  Ten major ledger items have been […]

  In this article we will see how cost allocations are done in a Energy sector. Primal Energy is an energy corporation with its chief operations – retailing and bulk distribution of electrical energy with provision of metering and data services. They cater to nearly one million electricity consumers spread across a network franchise spanning […]