From the course: Activity-Based Costing
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Including direct costs
- ABC is essentially about better understanding what drives overheads. Sometimes these are just calLed indirect costs. However, it can also be really useful to know how this compares to the direct costs of the business. But why does this matter? Well, let's say you run a toy manufacturing business, where the direct costs to produce just one of the products, say, skateboards, are 20% of all the direct costs that the business incurs. And now let's say that, after completing our ABC analysis, we've been able to work out that the same product line consumes 40% of all overhead costs. As a manager, this would be a rather interesting insight, don't you think? So, let's take a quick look at how we can integrate direct costs with overheads, providing a complete picture of business expenditure. If you'd like to join me in this experience, then please open the Excel exercise file for this video and make sure you're in the Structure worksheet. As you can see, we have already built the three steps…
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