Financial Management: Activity Based Costing Presentation - BMP5006

This presentation provides a comprehensive overview of Activity Based Costing (ABC), defining it and comparing it with other costing systems like zero-based costing and traditional absorption costing. It delves into the application of ABC within Associated British Foods, detailing resources, resource drivers, activities, activity drivers, activity cost drivers, and cost objects. The presentation highlights the advantages and disadvantages of using ABC, contrasting it with traditional costing techniques such as incremental and cash budgeting. Ultimately, it concludes that ABC offers a more accurate and specific method for costing products and services, leading to better pricing decisions by providing a precise breakdown of indirect costs. The presentation references academic sources to support its analysis and findings. Desklib provides access to similar presentations and study resources for students.

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.