PRESENTED BY:

FAHEEM KHAN
MUHAMMED SAEED
MEENA
KAMRAN IJAZ
 TABLE OF CONTENT
 What is ABC?
 Essential for implementation of ABC
 How ABC make decisions more
efficient?
 Intro of case study
 Discussion questions of the case study.
 What is ABC?

 Activity based costing is an accounting

methodology that assigns costs to
activities rather than products or
services
 This enables resource and overhead
costs to be more accurately assigned to
the products and the services that
consume them.
 ESSENTIALS FOR ABC

 Involvement of top leadership

 Responsibility of cross functional teams
 Evaluation and rewards based on ABC.
 HOW TO IMPLEMN ABC

1. Identify activities and resources

2. Measure the costs of resources used
to perform each activity
3. Determine cost drivers and resource
4. Assign activity costs to products by
multiplying the use of the cost
drivers by the resource-consumption
rates
 CASE STUDY

Topic: Public sector, activity analysis,

value added
company :A London borough
OBJECTIVES
 Evaluation of cost drivers
 Decision about comparing department
performance with all other depts.
nationally
 Accuracy of cost and potential areas for
cost reduction.
ABOUT CASE STUDY…….
New dept setup in nov, 2002
 Manage partnership and corporate
initiatives, provide information and
advice to business and developers.
 Contribute to local policy in borough
ABOUT CASE STUDY…..
 Dep't head is in favor of introducing ABC
for accurate cost information and
decisions.
 Other managers are reluctant to try this
technique as it has never been applied.
 Clara want to show the effectiveness of
this technique.
 TOTAL COST OF
DEPARTMENT

 Total cost related to staff in department

is $ 200,000

 She is using just this cost for activity

base analysis.
Activities & description
NO ACTIVTIES DESCRIPTION

1 Requests for information Information packs have been prepared for

from businesses telephone enquiries or letters to standardise
the response to requests for information.
Additional research may be necessary but
this is not a significant activity
2 Request for information Information packs are provided giving
from developers details of labour market, training, financial
information and further contacts
3 Project management and The department develops and manages a
development. wide range of projects including
environmental improvements, seminars,
training projects and joint venture
developments. There is a lot of time taken
up by preparing reports for committees
ACTIVITIES…..
NO ACTIVTIES DESCRIPTION

4 Policy development A policy contribution includes work for

different bodies such as the Government
departments.

5 Work for other It is difficult to define a typical request for

council departments. information but generally each request involves
a similar amount of activity.

6 Other This is time spent on various activities in the

department, which Clara will consider in more
detail in the future.
 COST DRIVERS AND % USAGE
ACTIVITY COST DRIVERS % of department’s
total hours by
activity
Requests for Number of requests for 21
information from information from
businesses businesses
Request for Number of requests for 14
information from information from
developers developers
Project Number of requests for 30
management and Committee reports.
development.

Policy Number of requests for 14

development policy input.
Work for other Number of requests for 6
council information or analysis.
departments.

Other Number of hours. 15

Total 100%
 ESTIMATED ANNUAL VOLUME
Cost driver - Estimated annual Estimated annual
estimated annual volume - minimum volume - maximum
Number of requests 1,000 1,200
for information from
businesses
Number of requests 550 650
for information from
developers
Number of requests 70 120
for Committee
reports.
Number of requests 140 180
for policy input.
Number of requests 170 240
for information or
analysis.
Number of hours. 1,200 1,200
DISCUSSSION
QUESTIONS
QUESTION # 1
 Clara wants to compare her dept’s
performance with other dept’s(with minimum
cost per activity)
 Identify Potential areas for improvements.
Activity rates calculation
cost Reque Req. Projec Policy Work other total
st for for t mgt develp for
info info & mnt other
from from devpnt council
buss. devel . depts.
opers
Staff 42000 28000 60000 28000 12000 30000 200000
related
cost

total 42000 28000 60000 28000 12000 30000

Activity rates cal……

Estimated Request Req. Project Policy Work for other

volume for info for mgt & develp other
from info devpnt. mnt council
buss. from depts.
develo
pers
Maximum 35 43.076 500 155.55 70.58 Not
volume applicable
Minimum 42 50.909 857.14 200 70.58 Not
volume applicable
Average 38.18 46.666 681.57 175 58.53 Not
volume applicable
Assumed data of other dept.
Estimate Requ Req. Project Policy Work other
d volume est for info mgt & develp for
for from devpnt. mnt other
info develo council
from pers depts.
buss.
Maximum 40 39 300 150 52
volume

Minimum 39 47.20 500 205 65.58

volume

Average 36 45 525.6 180 68.52

volume
Discussion Question # 2

 Evaluate the choice of cost drivers

identified by Clara and discuss how the
accuracy of the costs can be improved.
Description & cost drivers
NO DESCRIPTION COST DRIVERS

1 Information packs have been prepared for Number of requests

telephone enquiries or letters to standardise the for information from
response to requests for information. Additional businesses
research may be necessary but this is not a
significant activity.
2 Information packs are provided giving details of
Number of requests
labour market, training, financial information and
for information from
further contacts. developers
3 The department develops and manages a wide Number of requests
range of projects including environmental for Committee
improvements, seminars, training projects and reports.
joint venture developments. There is a lot of
time taken up by preparing reports for
committees.
Description & cost
drivers…..
SNO DESCRIPTION COST DRIVERS
4 A policy contribution includes work Number of requests for
for different bodies such as the policy input.
Government departments.
5 It is difficult to define a typical Number of requests for
request for information but generally information or analysis.
each request involves a similar
amount of activity.
6 This is time spent on various Number of hours.
activities in the department, which
Clara will consider in more detail in
the future.
Identifying New Cost Drivers.
Cost drivers by dept.
Number of requests for information
from businesses
Number of requests for information
from developers
Number of requests for Committee
reports.
Number of requests for policy input.
Number of requests for information
or analysis.
Number of hours.
Suggested cost drivers
No of request entertained to
provide information.
No. of request entertained to
provide info. To developers
No. of hours used to prepare
reports
No. of hours used for policy input
No of request analyzed.
 THANK YOU!!!!

ANY QUESTION????