Development of Activity-Based Costing Management System Methodology (ABC Management Systems)

Project Goal

To develop a progressive methodology (concept) capable of overcoming the limitations of the traditional cost accounting system and establishing a cause-and-effect relationship between products (services, clients) and the costs required for their production (maintenance).

Main Tasks:

• Business improvement;
• Enhancing the company’s competitiveness;
• Establishing adequate costs per unit of product or service and, consequently, adequate prices;
• Impacting the cost-generating factors of various activities;
• Evaluating performance results both for the company and for individual activities (operations).

Project Stages:

• Company Familiarization:
  • Strategy;
  • Organizational structure;
  • Business processes;
  • Accounting reporting;
  • Management reporting;
  • Motivation.
• Development of Activity-Based Costing Management System Methodology (ABC management systems):
  • Classification and grouping of costs;
  • Company activities;
  • Establishing cause-and-effect relationships between activities and costs;
  • Cost drivers characterizing the consumption of costs by activities;
  • Report on tracking (allocating) indirect and auxiliary costs to activities:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Cost objects (products, services, clients);
  • Establishing cause-and-effect relationships between cost objects and activities;
  • Activity cost drivers characterizing the consumption of activities by cost objects or other activities;
  • Report on calculating the quantity of each activity driver per cost object:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Report on calculating rates per unit of activity cost driver:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Report on calculating activity expenses allocated to cost objects:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Profit and Loss Statement (P&L) by cost object:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Regulation of processes under the activity-based cost management system (ABC management systems).
• Compilation of the “Activity-Based Cost Management System Methodology (ABC management systems)” document.

Execution Methodology:

• Drafting an initial list of requested documents from the Customer and analyzing them;
• Compiling a list of questions for the Customer’s respondents and analyzing response results;
• Analyzing the received information;
• Coordinating and approving the developed documents regarding the activity-based cost management system methodology (ABC management systems).

Project Result:

• A formalized methodology (concept) for the activity-based cost management system (ABC management systems) corresponding to the goals and objectives of the project;
• A structured list of works and investment volumes for automating the activity-based cost management system methodology (ABC management systems).

Value for the Customer:

• Presence of a progressive activity-based cost management system;
• Information coming from this system helps justify management decisions in various areas:
  • Strategic direction:
    • Pricing decisions (pricing);
    • Product assortment formation (product portfolio);
    • Increasing value for customers;
    • Competitive situation analysis;
    • Supplier sourcing;
    • Product strategy analysis.
  • Operational direction:
    • Improvement (reengineering) of business processes and activities;
    • Cost reduction;
    • Management of product, service, and client cost price;
    • Establishing new forms of customer relations;
    • Manager motivation.