Posted in Finance, Accounting and Economics Terms, Total Reads: 303
Definition: Activity Dictionary
A list or a chart of all important activities which have to be used in activity based costing analysis. A detailed description of all kinds of activity undertaken is noted including that of inputs, outputs, cost drivers (a factor that creates or drives the cost of the activity), suppliers and customers. The activity dictionary acts as an efficient guide to the managers to obtain and increase the efficiency of any operation related to costing.
The activity analysis process for activity based costing (ABC) can be quite cumbersome and confusing. By segregating the activities by function, department and business operation, the activity dictionary actually makes the process a lot easier. Preparing an ‘Activity Dictionary’ is one of the first steps in implementing activity based costing which is a technique for allocating costs to a product, service, customer, etc. This technique is widely used to for calculating overhead than simply using machine hours or labour hours. Decision makers, analysts and consultants often use this to come up with critical metrics and find innovative ways to enhance operational efficiency.
A sample activity dictionary in a retail environment would look like this-