what is meant by activity based costing?
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Activity-Based Costing uses cost drivers to assign the costs of resources to activities and unit cost as a way of measuring an output. Unit cost is the "average total cost" of producing one unit of output. It is calculated by dividing the total cost of production by the total number of units of output produced. \n\nFor example, if an automobile manufacturer produces 50 vehicles for a total cost of €1,250,000, then the cost-per-unit (vehicle) is €25,000. \n\n \nMaking clear connections between costs and outputs creates a truer financial picture. Costs that are visible and explicit are essential to wise allocation of resources. Total cost visibility takes into account all of the costs involved in producing and delivering a product or service.\n\nThe Four Steps to ABC Implementation\n\n1 - Identify activities\nPerform an in-depth analysis of the operating processes of each responsibility segment. Each process may consist of one or more activities required by outputs. \n\n2 - Assign resource costs to activities\nThis is sometimes called "tracing." Traceability refers to tracing costs to cost objects to determine why costs were incurred. Costs can be categorized in three ways: \n(a) direct—costs that can be traced directly to one output. Example: the material costs (varnish, wood, paint) to build a chair. \n(b) indirect—costs that cannot be allocated to an individual output; in other words, they benefit two or more outputs, but not all outputs. Examples: maintenance costs for the saws that cut the wood, storage costs, other construction materials, and quality assurance.) \n(c) General & Administrative—costs that cannot reasonably be associated with any particular product or service produced (overhead). These costs would remain the same no matter what output the activity produced. Examples: salaries of personnel in purchasing department, depreciation on equipment, and plant security. \n\n3 - Identify outputs\nIdentify all of the outputs for which an activity segment performs activities and consumes resources. Outputs can be products, services, or customers (persons or entities to whom a federal agency is required to provide goods or services). \n4 - Assign activity costs to outputs\nAssign activity costs to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs’ consumption or demand for activities. For example, a driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver). \n\nActivity-Based Costing encourages managers to identify which activities are value-added—those that will best accomplish a mission, deliver a service, or meet a customer demand. It improves operational efficiency and enhances decision-making through better, more meaningful cost information.
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it depends on the cost of the work being done
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In addition to your other answer, you may consult the RS Means book for estimating construction costs.  The Construction Standards Institute breaks down general construction into 16 categories that cover each section of work (i.e. sitework, masonry/brick, finishes, specialties, HVAC, etc).  \n\nThe RS Means book allows one to find pricing for materials, labor, equipment, and overhead & profit allowances for each respective section of construction.  Further, there are tools within this manual that allow for size and location adjustments, as well as all engineering and consulting fees associated with conceptual estimating procedures.  \n\nWhile it is by no means exhaustive in nature, it provides a rather good starting point and gives relatively straight-forward explanations of the process.
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A) Here is what materials, labor, and machinery operations cost.\nB) Here is money I received for (widget) production.\n   B - A = funds from operations.
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YES. From the IRS website:\n\nThe following are types of expenses that go into figuring the cost of goods sold.\n\n- The cost of product or raw materials, including the cost of having them shipped to you. \n- The cost of storing the products you sell. \n- Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products. \nFactory overhead expenses.
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Process costing traces and accumulates direct costs, and allocates indirect costs, through a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product.\n\nWhy do we need to allocate total product costs to units of product? A company may manufacture thousands or millions of units of product in a given period of time. · products are manufactured in large quantities, but, · products must be sold in small quantities, sometimes one at a time (automobiles, loaves of bread), a dozen or two at a time (eggs, cookies), etc. · product costs must be transferred from Finished Goods to Cost of Goods Sold as sales are made. This requires a correct and accurate accounting of product costs per unit, to have a proper matching of product costs against related sales revenue. · managers need to maintain cost control over the manufacturing process. Process costing provides managers with feedback that can be used to compare similar product costs from one month to the next, keeping costs in line with projected manufacturing budgets. · a fraction-of-a-cent cost change can represent a large dollar change in overall profitability, when selling millions of units of product a month. Managers must carefully watch per unit costs on a daily basis through the production process, while at the same time dealing with materials and output in huge quantities. Materials part way through a process (e.g. chemicals) might need to be given a value, process costing allows for this. By determining what cost the part processed material has incurred such as labour or overhead an "equivalent unit" relative to the value of a finished process can be calculated.
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It is talking about the design and use of the company's accounting system.\nThis system should be designed so that it provides all the necessary management information to help decision making.\nSales should be analysed so that meaningful information can be gained about which customers are buying which products.\nPurchases should be analysed so that departmental costs and profit/loss are available,, etc
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In business, the fixed cost is "sunk". That is, once you spend it, you can't recover it. \n\nA variable cost is something that you have some control over. As you manufacture items, it increases. \n\nYou may be able to avoid variable costs, but not fixed costs, by producing less or none of the items. On the other hand, profit is only associated with this variable cost.\n\nOne place where this is important is in breakeven analysis. How many items do you have to produce to create enough profit over the variable cost to overcome the fixed costs?
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Something to do with COSTING. Try this,
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The first three sites I looked at all seem to indicate that project crashing is a way to reduce the overall duration of a project. \n\nThey all suggest reducing the planned duration of one or more tasks that are on the critical path (Since there's no sense in looking at tasks that aren't on the critical path). \n\nReduction of duration means increasing resources (more people or equipment or overtime hours). This implies that the original assumptions made when planning were based on minimising costs rather than duration. \n\nAll the techniques then went into mathematical models that I didn't analyse in detail but could see that all were trying to optimise [minimal] costs vs. [maximal] reduction in project duration.
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This ratio will give you a quick snapshot of how quickly your sales are covering the cost of sales or operating expense. It is by no means an indication of profitability but can be used over time to track the increase or decrease in the cost of operation compared to amount of sales.
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try this site\n\nhttp://www.futureaccountant.com/process-costing/
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ABC is a five stage process: \n\nidentify the various activities within an organisation; \ndetermine the key cost driver for each activity; \ncreate cost pools to collect activity costs having the same cost driver; \nmeasure the incidence of each cost driver for each product/service; \nattribute the cost of each pool (and activity) to products/services based on the cost drivers. \n\nABC is founded on the premise that it is activities that cause costs not products. Producing and selling products creates demand for activities, driven by various factors.
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Term used in Cost Based Accounting and mainly manufacturing business\n\nDirect Materials - Raw materials and other purchases that become a part of the units produced and incur expenditures that are easily traced to the units of output and included in the COST OF GOODS SOLD. As opposed to INDIRECT MATERIALS, such as office supplies.
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You have not mentioned the type of organisation. Manufacturing or Marketing etc.\nFirst you must divide the organisation into various departments on some related basis.You also must have the data regarding the costs or expenditures incurred.\nCollection Classification comparison itself would reveal many things. \nIf manufacturing organisation you can determine the cost per unit of production ; and compare with various periods.\nWell This is not a forum to cover the entire gamut of cost vcontrol.
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Capital expenditures ("CAPEX" )  or capitalisation in accounts,   are expenditures used by a company to acquire or upgrade physical assets such as equipment, property, industrial buildings. In accounting, a capital expenditure is added to an asset account (i.e. capitalized), thus increasing the asset's basis (i.e. the cost or value of an asset as adjusted for tax purposes).\n\nAn ongoing question of the accounting of any company is whether certain expenses should be capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over multiple years. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.\n\nThe counterpart of capital expenditure is operational expenditure-
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Cost of Goods Sold \n= Selling Price - Gross Profit\n\nCost of Goods Sold \n= Opening Stock + Direct Expenses - Closing Stock\n\nNow since there is no stock, it would not be appropriate to think in terms of opening and closing stocks.\n\nDirect Expenses is a term relevant to an asset...\n\nAny expenditure that is incurred before brining the asset into usable condition is direct expenditure for the asset..\n\nSince in case of service industry we do not find direct expenses, it would not be possible to use the above ideas for ascertaining the cost of goods sold.\n\nSince there is no goods being sold, it would not be appropriate to use the term "cost of goods sold".\n\nIf one is to decide whether the business is profitable or not, the first figure to look at is gross profit, which gives the basic profit from the set of transactions related to trading activity.\n\nIf for a similar purpose, you intend to find the basic profit from a set of transactions that relate to the service activity, then we make a separate account to which we transfer all the incomes and expenses relating to that activity to ascertain a profit that is an equivalent of gross profit in trading activity.\n\nSome examples of accounts which reveal the profit from a set of transactions....\n\nrelated to consignments -- Consignment a/c\nrelated to joint ventures -- Joint Venture a/c\nrelated to branch -- Branch a/c\nrelated to hire purchase -- hire purchases a/c\n\nsimilarly \nrelated to a service  -- xxx service a/c\n\n\nhttp://www.futureaccountant.com/\n\nhttp://www.schoolingkids.com/