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When the University of Nebraska Cornhuskers play football at home to a sellout crowd, the stadium becomes the state's third largest city
Activity Based Costing
The cost of a product or service is not necessarily a precise sum. Its assigned cost can vary based on the method of assigning costs to it and on many variables, including the concurrent manufacture and delivery of other products and services. Currently, many organisations face a squeeze on profit margins. Activity-Based Costing (ABC) is a method to accumulate product cost by determining all costs associated with activities required to produce it. This type of system uses multiple cost drivers to trace activity costs in a multiple-step process to goods produced or services performed. Another issue facing some companies is the push by their major customers to price their products based on ABC methods. The change to an ABC system can have major implications on the complexity of the cost accounting system and the type and amount of detailed information that must be collected.
Our Approach
The ABC process is usually applied on a pilot basis first. Because of the process' complexity, we normally encourage our clients to obtain and use a software package to handle the ongoing allocation of costs to activities and cost objects.