Activity based Costing (Kaplan)

Posted in Finance, Accounting and Economics Terms, Total Reads: 2124
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Definition: Activity based Costing (Kaplan)

Activity based  costing is helpful in determining the unused capacity in the system. It also accounts separately for the complex processes since more resources are allocated in those processes. It is usually used in complex layouts unlike in a simple plant or a department.  It helps in matching the costing with the hours consumed .

Step 1 :

Calculate the driver rate ie rate for doing an activity .Its unit is in Rs /min .It is estimated taking into account the utilization factor .

Step 2 :

The overall cost for the unit  is hence estimated  . The individual task times are multiplied with  the quantities  and the cumulative time is calculated . The individual  cost  is calculated using the (driver *  individual time ). The cumulative cost is calculated and compared with the allocated cost.

Example :

Order time = 30 mins , order processing time =40 mins , order  checking time =50 mins .

Orders recd

10,700

30

24  (cost per order recd)

256800

Orders processed

700

40

32

22400

Orders checked

300

50

40

12000

 

 

 

 

Total cost = 291200

 

The total allocated  mins for all the activities is  4,000,00

Assuming the value of driver to be 0.8  we get 3,20,000 as the total allocated cost

Percentage utilization

= 2,91,200/ 3,20,000 = 90.9%


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