In this video, learn about ABC model cost drivers, and how they can be used to allocate costs from inputs in cost objects and outputs.
- Okay, let's remember that ABC is a method … of allocating overhead costs to cost objects, … say, for example, a company's products or services. … We achieve this by defining something called … a cost or activity driver, … which pretty much tells us what drives the overhead costs. … But, before we do this, … we need to make sure that we have completed … the first two steps of ABC. … Step 1 being, what are the overhead pools … or inputs of the business? … And Step 2, what are we actually trying … to allocate costs to? … As you can see in this chart, … activity drivers provide the critical link … between these two steps. … Think of Step 3 as, say, … the missing piece of the ABC jigsaw puzzle. … It's also the most challenging part. … So, how about we take the time … to understand it a little further using a case study? … Let's assume we're performing an ABC for a government agency … that oversees transport registration. … The first step of ABC asks us to source … and analyze the business' overheads. …
- Why use activity-based costing (ABC)?
- How ABC can help organizations make more informed decisions
- Defining cost objects and activity drivers
- Reviewing source data
- Building the ABC model
- Preparing ABC reports
- Advising stakeholders on outcomes