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A cost driver is a factor that causes (drives) activity costs. Knowing how costs behave with a respect to a cost driver is essential for planning, control, decision making and accurate product costing. While traditional systems are using one or few volume-related bases, ABC uses too many cost drivers and these drivers may be volume-related or not. The number of the cost drivers are proportioned to the number of activities. An ABC system consists of two stages. In the first stage, activities are identified, costs are associated with individual activities, and activities and their associated costs are divided into homogeneous sets. After activities are identified, First Stage Cost Drivers can be determined. To reduce the number of cost drivers, the activities which are logically related and have the same consumption ratios for all products are grouped. The grouped activities are called `activity centers`. The activities in the same activity center have the same cost driver. In the second stage, the costs which are collected in the activities are distributed to the products by using Second Stage Cost Drivers. To implement an ABC system, the companies need detailed information. To obtain this information, the company should have a developed computer-integrated system. The cost of implementing ABC and obtaining the information is higher than the traditional systems. So the managers should make the cost-benefit analysis before deciding to implement ABC. It is known that the companies which have high product diversity and complex manufacturing systems get great benefits from ABC implementation. The ABC method produces increased product costing accuracy. It also provides information about activities and their costs. Knowing what activities are being performed and their associated costs allows managers to focus on those activities that might offer opportunities for cost savings. Pricing decisions, product mix, new product introduction decisions and decisions on how to respond to 121competitors' products are some other product-related decisions in which ABC plays an important role. It must be underlined that ABC is not a seperate system. It can be a part of job-order product costing system or process product costing system. It is also known that ABC can not solve all the problems. But it is a starting point to solve the problems that the traditional cost accounting systems have. It provides accurate information for the managers. Thus, the managers make right decisions for their companies to be in a competitive business world. 122A cost driver is a factor that causes (drives) activity costs. Knowing how costs behave with a respect to a cost driver is essential for planning, control, decision making and accurate product costing. While traditional systems are using one or few volume-related bases, ABC uses too many cost drivers and these drivers may be volume-related or not. The number of the cost drivers are proportioned to the number of activities. An ABC system consists of two stages. In the first stage, activities are identified, costs are associated with individual activities, and activities and their associated costs are divided into homogeneous sets. After activities are identified, First Stage Cost Drivers can be determined. To reduce the number of cost drivers, the activities which are logically related and have the same consumption ratios for all products are grouped. The grouped activities are called `activity centers`. The activities in the same activity center have the same cost driver. In the second stage, the costs which are collected in the activities are distributed to the products by using Second Stage Cost Drivers. To implement an ABC system, the companies need detailed information. To obtain this information, the company should have a developed computer-integrated system. The cost of implementing ABC and obtaining the information is higher than the traditional systems. So the managers should make the cost-benefit analysis before deciding to implement ABC. It is known that the companies which have high product diversity and complex manufacturing systems get great benefits from ABC implementation. The ABC method produces increased product costing accuracy. It also provides information about activities and their costs. Knowing what activities are being performed and their associated costs allows managers to focus on those activities that might offer opportunities for cost savings. Pricing decisions, product mix, new product introduction decisions and decisions on how to respond to 121competitors' products are some other product-related decisions in which ABC plays an important role. It must be underlined that ABC is not a seperate system. It can be a part of job-order product costing system or process product costing system. It is also known that ABC can not solve all the problems. But it is a starting point to solve the problems that the traditional cost accounting systems have. It provides accurate information for the managers. Thus, the managers make right decisions for their companies to be in a competitive business world. 122 130 |
