Activity Based Costing Explanation and Implementation in Cadbury Group

This presentation explains Activity Based Costing (ABC) and its implementation in Cadbury Group. It compares ABC to conventional costing methods and discusses the benefits and negative effects of employing ABC in a company. The presentation covers resource drivers, activity drivers, activity cost drivers, and cost objects for ABC. It also explains why ABC might be recognized as beneficial in preference to conventional costing methods.

BMP5006

TABLE OF CONTENTS
Activity Based Costing Explanation
Compared to different costing methods
Cadbury Group Activity Based Costing - Resources
Resource Drivers for Cadbury's Activity-Based Costing
Cadbury Group Activity Based Costing - Activities
Activity Drivers for Cadbury's Activity Based Costing
Activity Cost Drivers for Cadbury's Activity-Based Costing
Cadbury's firm uses activity-based costing, and its cost objects
Benefits of the company using ABC
Negative effects of employing ABC in company
Conventional Costing Methods
Why Activity Based Costing might be recognized as beneficial in preference to conventional costing methods
Summary
REFERENCES

ACTIVITY BASED COSTING EXPLANATION
 The globally recognised Activity Based Costing method produces employee timings and costs by breaking down
each process into its component parts and calculating the manpower input required.
 This enables employee salaries to be allocated to all business activities and provides an estimate of the quantity of
assets needed to perform a specific task.
 This provides critical information for any movement management, measurement, and planning, enabling
managers to develop more precise and educated corporate plans.

COMPARED TO DIFFERENT COSTING METHODS
 Using activity-based costing is an easy technique to assign both explicit and implicit costs to particular item
elements. In an even more complicated system known as "activity-based costing," costs are allocated to activities
centres rather than the products produced by these activities.
 ABC is more complex and exact than conventional costing, which frequently divides operating expenses among
products depending on a yearly rate that has been specified. Standard costing is less exact and less complex than
ABC costing.

CADBURY GROUP ACTIVITY BASED COSTING - RESOURCES
 A technique to costing and administration called "activity-based costing" involves monitoring asset use and setting
prices for finished goods. Resources are assigned to operations, and costing elements are assigned to tasks. The
alternative uses cost drivers to link operations' expenses to results in Cadbury.
 Assets are allotted to operations, and then, depending on their usage, those assets are allotted to costing categories.
The direct relationships among cost drivers and professions are recognised in activity-based costing. For example,
the total number of persons doing the operation should be established whenever personnel is a capacity driver
getting linked to an activity costing. Average workforce divided by asset pricing ratio. The price of performing the
procedure in Cadbury is directly correlated with this statistic.

RESOURCE DRIVERS FOR CADBURY'S ACTIVITY-BASED COSTING
 ABC focuses on cost drivers, or behaviours that raise costs. While activity-based costing includes transaction-
based factors such as the number of sales handled, traditional absorption costing concentrates on production
factors such as worker time. Long-term variable costs that were formerly thought of as static costs can
consequently be assigned to commodities.
 Cost drivers are the actual acts which raise an activity costs enhanced and total costing. The quantity of shipments
made to customers, the quantity of production lines in a facility, and the frequency with which goods are acquired
are all instances of procedures which have an impact on a company's costs. Using ABC, the value each component
is determined by dividing the total value of each ingredient in the combination by the total quantity of components
in the experiment.

CADBURY GROUP ACTIVITY BASED COSTING - ACTIVITIES
 Component scale activities occur each moment a good or product is delivered. Activities at the component stage
comprise direct labour costs, component production costs, and machine upkeep.
 The costs incurred whenever a grouping (batches) of items is produced or a series of tasks is carried out are known
as batch levels operations. Approvals, equipment setup, and appropriate certification are batch stage operations.
 Operations which support the entire range of products instead of just one element are included in production range
operations. Products range operations include things like unit layout modifications, technical modifications
required to the manufacturing type, and warehousing and logistics costs specific to every merchandise category.

ACTIVITY DRIVERS FOR CADBURY'S ACTIVITY BASED COSTING
 An activity driver assessment is a technique used in activity-based costing to discover and examine the factors
influencing the pricing of goods and commodities. This approach understands the relationship among costs,
administrative costs, and manufacturing items. By this engagement, it produces extra expenses. The ADA
accounts for all of the various costs factors. In the end, the analysis provides management with a mechanism to
decide if particular operations are much more costly and if particular factors are easier to control. Its analysis
covers the relationships among operations and the factors which influence their pricing.

ACTIVITY COST DRIVERS FOR CADBURY'S ACTIVITY-
BASED COSTING
 An activity cost driver is a group of actions which influence the rising or falling expenses experienced by a
business. Therefore, by correctly understanding the specific operations that are producing the expenditures, this
could help the company become more profitable to identify which item or function is responsible for particular
expenditures. Such a platform understands the relationship among costs, administrative costs, and manufacturing
items. By this relationship, indirect costs are produced.
 Activity cost drivers are specific actions which cause variable costs. There may be more than one cost driver for a
given component expense. For example, activity-based cost drivers in the manufacturing of a commodity could be
the duration spent by equipment and the days worked by employees.

CADBURY'S FIRM USES ACTIVITY-BASED
COSTING, AND ITS COST OBJECTS
 The ABC costing accountancy system is focused on actions that are any occasions, durations of effort, or
endeavours with a specific goal, including setting up production gear, producing things, distributing finished
products, or operating machinery. Projects utilize particular highlighting, which makes them costing items.
Common instances of cost items include business offers, geographical regions, customers, divisions, and any other
items for which management wants to measure cost. Everything which needs a distinct costing assessment is
referred to as a costing component. A costing element could be a product, a business, an initiative, or anything else
entirely.

BENEFITS OF THE COMPANY USING ABC
 This could help managers make better choices because ABC could now be measured precisely. Since this part
focuses on uncertainty, a superior option can successfully improve managerial strategy and operations
understanding while enabling businesses to identify errors.
 The business should offer premium products and operations at fair prices in order to preserve its market edge. The
company is therefore curious about the prices which competitors establish for various items.
 This is an important factor for the company to take into account when calculating manufacturing pricing and
whether to enter a particular industry. If the sale value is actually too expensive, the company risks alienating
several of its devoted customers, and its image would deteriorate.

NEGATIVE EFFECTS OF EMPLOYING ABC IN
COMPANY
 Expensive and Difficult as ABC may be more difficult than usual item costing data since it incorporates a variety
of allocations grounds and cost drivers. It could be expensive to manage the ABC approach.
 Driver Choice as when the ABC method is in existence, a number of problems can occur, including the brief
listings of the costing process, the distribution of expenditures and charges, changing cost driver levels, etc.
 Drawback for minor businesses as it is that ABC offers different amounts of utility to different organisations,
including large manufacturing corporations that could utilize it even more efficiently than minor businesses.
Additionally, ABC is expected to be advantageous for businesses which utilize cost-plus pricing because it offers
accurate manufacturing costs. ABC might not even, though, be favoured by companies that use market-based
costing.

CONVENTIONAL COSTING METHODS
 Costing methods are employed for goods that undergo many procedures. The production of fabric involves several
steps, including churning, sewing, and the final result. Each procedure produces a result which could be managed
to sell as a completed good as a whole. Process costing is therefore utilised to determine the price of each
manufacturing phase.
 Costs are determined independently for each task request using this procedure because each has its unique
specifications and range. This kind of costing likewise applies to custom-made goods.

WHY ACTIVITY BASED COSTING MIGHT BE RECOGNIZED AS
BENEFICIAL IN PREFERENCE TO CONVENTIONAL COSTING METHODS
 Activity-based costs data is more accurate than conventional costing methods. This appears to be because they
provide a much more detailed breakdown of external charges. ABC techniques, in contrast side, need more work
and cost more money to implement. It is difficult to switch from conventional costing to exercising costing. ABC
methods are more challenging to implement and complex than conventional costing methods. In contrast side, the
accuracy of conventional costing methods is inferior to that of the costing system. Conventional costing
techniques occasionally produce significant under- or overestimates.

SUMMARY
 ABC is a specialised method for allocating costs to specific tasks, enabling a more efficient cost division, and
identifying pointless procedures. Its extensive implementation could lead to cost reductions and help increase the
quantity of revenue made.
 Operations are the main cost component in ABC processes. Yet, the strategy is flexible sufficient to allocate
expenses to customers, processors, and managerial duties instead of just commodities.

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