Development of the activity-based costing management system methodology (ABC management systems)

Project Objective

Develop a progressive methodology (concept), capable of overcoming the limitations of traditional cost management system and to establish a causal link between the products (services, customer) and cost required for their production (service)

Main goals:

• Business improvement;
• Increase the competitiveness of the company;
• Establish adequate costs per unit of product, service and adequate prices accordingly;
• Impact on the cost-generating factors of various activities;
• Performance evaluation of both the company and separate type of activity (transactions).

Stages of the project:

• Introduction to the Company:
  • Strategy;
  • Organizational structure;
  • Business-processes;
  • Accounting reports;
  • Management reporting;
  • Motivation.
• Development of the methodology for activity-based management system (ABC management systems):
  • Classification, cost grouping;
  • Company’s types of activities;
  • Establishing cause-effect relationship between types of activities and cost drivers;
  • Cost factors characterizing the consumption of costs by activities;
    • Report on the tracking (allocation) of types of indirect and ancillary costs for activities:
    • Format;
    • Calculation algorithms;
    • Data sources
  • Cost objects (product, service, customers);
  • Establishing cause-effect relationships between cost objects and types of activities;
  • Activity cost factors characterizing consumption of activities by cost objects or other activities;
  • Report on the calculation of the amount of each activity factor for the cost objects:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Report on the calculation of rates per unit cost-of-operation:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Report on calculation of activity costs allocated to cost objects:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Profit & loss account (P&L) in terms of cost objects:
    • Format;
    • Calculation algorithms;
    • Data sources.
  • Regulation of processes for activity based costing system
• Drafting of a document “Methodology for activity based costing management system”.

Conduct procedure:

• Preparation of a preliminary list of the documents requested from the Customer and analysis of these documents;
• Preparation of the list of questions for the Customer’s responders and analysis of the answers;
• Analysis of the information received;
• Coordination and approval of the developed documents on Methodology for activity based costing management system.

Project Outcomes:

• Formalized methodology (concept) for activity based costing management system aligned with the goals and objectives of the project;
• Structured scope of works and investments required for automation of activity based costing management system methodology

Value for the Customer:

• Presence of ABC management system;
• Information coming from this system helps to justify management decisions across different areas:
  • Strategic direction:
    • Adoption of price decisions (pricing);
    • Formation of product range (Product portfolio;
    • Increasing value for the customers;
    • Analysis of the competitive situation;
    • Search of suppliers;
    • Analysis of the product strategy.
  • Operational direction:
    • Improvement (reengineering) of business processes, activities;
    • Cost reduction;
    • Managing the cost price of products, services, customers;
    • Establishment of new forms of relations with customers;
    • Motivation of managers.