Activity Based Costing Of Associated British Foods - BMP5006 Management Accounting in Support of Strategic Management

This presentation for BMP5006 Management Accounting in Support of Strategic Management covers Activity Based Costing Of Associated British Foods. It includes a definition of ABC, a comparison with other costing systems, ABC of Associated British Foods, advantages and disadvantages of using ABC, traditional costing techniques, and why ABC is beneficial. The presentation also includes references.

BMP5006 Financial Management & Decision
Making
Assessment 1 - Presentation

Activity Based Costing Of
Associated British Foods
Name: xxxxxxx
ID: xxxxxxx

Content
• Definition of Activity Based Costing
• Comparison with other costing systems
• Activity Based Costing of Associated British Foods organisation
Resources
Resource Drivers
Activities
Activity Drivers
Activity Cost Drivers
Cost Objects

Content
• Advantages of the business using ABC
• Disadvantages of the business using ABC
• Traditional Costing Techniques
• Why Activity Based Costing (ABC) might be recognised as beneficial in
preference to Traditional Costing Techniques

Definition of Activity Based Costing (ABC)
• ABC is the method of assigning the overhead and indirect expenses to the products
produced by the organization.
• It enhances the reliability of the data so that p proper costing and classifications of
expenses incurred by firm in its manufacturing procedure can become possible.
• This permits the firm to gain the ability to evaluate the proper costing of production so that
effective pricing strategy, etc practices can be exerted.

Comparison with other costing systems
Activity Based Costing Zero based costing Absorption costing Traditional method
• It is used for activity based
costing in which expenses
are allocated as per the
practices
• This method is utilized for
preparing the budget from
the scratch
• It is one of the crucial
method that allocates cost
that by products by
involving both fixed and
variable expense used in
manufacturing procedure
(Drury, 2018).
• In such methods the cost
is estimated by for
products in advance that
does not support in general
manner.
• Resource allocation is
based on the justification
of the cost drivers
• The allocation is exerted
on the basis of the incurred
expenditure
• Allocates across all units
produced for the period.
• This is helpful as allocated
on the basis of unit, facility,
product and batch level.
• Its beneficial only for the
short duration which
impact decision-making
procedure of firm,.
• Higher level of time is
consumed which does not
allow achieving financial
goals
• It is difficult in comparing
the cost that affect
managerial decision.
• In general manner
evaluating expenses does
not become possible

Activity Based Costing of Associated British Foods - Resources
• It is one of the successful method that is helpful in gaining the relevant understanding
about the prevailing cost in manufacturing procedure for the products.
• Resources including personnel, service, technologies and material used for the carrying
out the operational practices.
• British Associated Foods have clients, internal & external of the firm, suppliers, etc
parties.
• In the operational activities of the British associated Food, the resources which are
deriving the cost to the company includes personnel, technologies, materials for
production, etc.

Activity Based Costing of Associated British Foods – Resource Drivers
• Resource drivers basically focuses on providing the link between expenditure of an
organization and activities performed with British associated Foods.
• This includes the number of machine setup required, demand for customer of special
inspections, handling storage, repairs and maintenance of machines, etc.
• This allows to identify the cause & relationship between the activity and cost drivers.
• It is useful in gaining information by specified firm to achieve ability to coordinate with
prevailing requirements of business.

Activity Based Costing of Associated
British Foods– Activities
This involves identifying the activities which are basically performed by the organization in
order to offer the products to the targeted audience.
The specified firm conducts operational activities such as manufacturing activities like
Obtaining raw
materials
Focusing on
personnel for
conducting
production
Ensuing proper
functioning of
machines
Inspections Assembling, etc.

Activity Based Costing of Associated
British Foods organisation – Activity
Drivers
• This comprises the allocation base which is basically used for obtaining the relevant
ability to estimate the cost.
• In this, activity cost driver rate is equals to total cost of activity which aids in gaining
proper knowledge so that effective practicing can become possible in organizational
procedure.
• In addition to this, the specified organization as well give emphasis on having relevant
cause & effect relationship between the cost and the driver.

Activity Based Costing of Associated British
Foods organisation – Activity Cost Drivers
• Cost drivers are the drivers which are the direct cause of the expenses of the business.
• These are the important and essential part of having the company's finance in order to
evaluate the profits of the future.
• By analysing the cost drivers it will help the cited business in order to ensure that the
cost of production should not exceed the earned revenue.

Activity Based Costing of Associated
British Foods organisation – Cost Objects
• The cost object is defined as the term which is used in the cost accounting in order to describe the things
in which the costs are assigned.
• The cost object of the company can be the department, machining operation, product line, process, etc.
• The cost of the business is determined by multiplying the resources consumed with the activity cost
drivers.
• This is the essential thing that the company must focus on in order to achieve the goof profits in the
market.

Advantages of the business using ABC
1. Provides the realistic and accurate production cost
2. Helps to evaluate the efficiency of production
3. Provides accurate data for profit margins
4. Allows the company to have specific overhead cost

Disadvantages of the business using ABC
1. Expensive and complex
2. Measurement difficulties
3. Selection of drivers
4. Time- consuming

Traditional Costing Techniques
There are various traditional costing techniques which were used by
the business in order to manage costing.
• Incremental costing budget
• Cash budget

Why Activity Based Costing (ABC) might be recognised as beneficial in preference to Traditional Costing
Techniques
Activity based costing used to provide the more accurate and specific method of the
products and services costing in order to lead the most accurate pricing decisions.
This method of costing is the most specific and accurate than the traditional costing
systems.
The reason behind this is to provide the most precise breakdown in the indirect costs of the
cited organization.

Summary
• From the above presentation it is concluded about the meaning of the activity based
costing.
• Further this presentation has concluded about the comparison of this method of costing
with the other costing methods.
• This presentation will outline the advantages and disadvantages of the business by using
the activity based budgeting.
• Further it has evaluated about comparison between the activity based costing with the
traditional cost techniques.

References
• Altawati, N. O. M. T. And et.al., 2018. A review of traditional cost system versus activity based
costing approaches. Advanced science letters. 24(6). pp.4688-4694.
• Banerjee, B., 2021. Cost accounting: Theory and practice. PHI Learning Pvt. Ltd.
• Drury, C., 2018. Cost and management accounting. Cengage Learning.
• Hansen, D.R., Mowen, M.M. and Heitger, D.L., 2021. Cost management. Cengage Learning.
• Hoozée, S. and Hansen, S.C., 2018. A comparison of activity-based costing and time-driven
activity-based costing. Journal of Management Accounting Research. 30(1). pp.143-167.
• Jalalabadi, F. and et.al., 2018, November. Activity-based costing. In Seminars in Plastic Surgery
(Vol. 32, No. 04, pp. 182-186). Thieme Medical Publishers.

Thank you