After ABC has been set up, the system begins collecting ABC data. Once you have a year's worth of data, you can use the ABC Cost Calculation program to calculate activity-based costs for ABC reporting and inquiries.
The following formulas explain how the ABC Cost Calculation program works.
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ABC Cost Calculations |
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Total G/L $ applied to a G/L Pool / Total # of ABC Activities in that Pool = Per Activity Cost |
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Per Activity Cost for the G/L Pool assigned to an Activity Code x Weight Factor = Activity Code Cost |
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Activity Code Cost x Occurrences = $ to subtract from Gross Profit for that Activity |
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Total Gross Profit $ - Total Activity Costs = Adjusted Gross Profit $ |
This program calculates and stores costs for each ABC activity code at the company and branch level for the following periods:
Year To Date this year
Year To Date same period last year
Rolling 12 month this year
Rolling 12 month same period last year
Note: For costs to be accurate, you need to have at least 12 months' worth of ABC activity.
The following example uses the ABC activities listed below, which comprise a G/L Warehouse Pool.
Line Item Pick - Stock
Line Item Pick - Nonstock
Print Shipping Document
Special Handling Instructions - Packing
Special Handling Instructions - Delivery
Delivery - OT Our Truck
The ABC Cost Calculation program accumulates the total number of activities specified above that were logged for a designated period. Assume this number of activities is 350,000.
During the designated period, the following dollar expenses have been posted to all of the G/L accounts to which you have assigned the Warehouse G/L pool. The system uses the G/L pool percentages assigned to each G/L account to calculate the total expense dollars allocated to the pool.
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G/L Acct |
$ Posted |
% of $ Posted to the Warehouse Pool |
$ Cost |
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Wages & Salaries - Whse |
100,000 |
60% |
60,000 |
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Utilities Expense |
50,000 |
50% |
25,000 |
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Fuel Expense |
25,000 |
50% |
12,500 |
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Truck Maintenance |
10,000 |
75% |
7,500 |
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Office Expense |
10,000 |
25% |
2,500 |
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Total expense dollars allocated to the Warehouse pool for this period |
107,500 |
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ABC Cost Calculation |
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Total $ Allocated to the Warehouse pool / Total # of Activities = Per Activity Cost |
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$107,500 / 350,000 = .307 |
The program stores and displays a per occurrence cost of 0.31 (due to rounding) for each ABC activity assigned to the Warehouse pool for the designated period. If the activity code is assigned a weight factor greater than 1, the system assigns a proportionally larger cost, for example, 0.62, twice the cost, would be assigned for a weight factor of 2.
When you generate a report or inquire on a customer, the total cost for an activity is determined by multiplying the per occurrence cost by the weight factor and the number of occurrences of that activity for that customer.
See Also: