Cost management method abc by example. ABC method

Activity based costing (“accounting by type of activity” or “calculation of costs based on business processes”) - calculation of cost by volume of economic activity.

Activity Based Costing or ABC Method , widely used in European and American enterprises of various profiles.

In the literal sense, this method means "accounting for costs by work", i.e. functional cost accounting.

In Activity Based Costing, an enterprise is viewed as a set of work activities. The initial stage of using ABC is to determine the list and sequence of work in the enterprise, which is usually carried out by decomposing complex work operations into their simplest components, in parallel with the calculation of their resource consumption. Within the framework of the ABC, three types of work are distinguished according to the way they participate in the production of products: Unit Level (piece work), Batch Level (batch work) and Product Level (product work). Such (work) in ABC systems is based on the experimental observation of the relationship between the behavior of costs and various production events: the release of a unit of production, the release of an order (package), the production of a product as such. At the same time, another important category of costs is omitted, which does not depend on production events - costs that ensure the functioning of the enterprise as a whole. To account for such costs, a fourth type of work is introduced - Facility Level (general business work). The first three categories of work, or rather, the costs of them, can be directly attributed to a specific product. The results of general economic work cannot be accurately assigned to one or another product, therefore, various algorithms have to be proposed for their distribution.

Accordingly, in order to achieve an optimal analysis, resources are also classified in the ABC: they are divided into those supplied at the time of consumption and supplied in advance. The former include piecework wages: workers are paid for the number of work operations that they have already completed; the second - a fixed salary, which is negotiated in advance and is not tied to a specific number of tasks. This division of resources makes it possible to organize a simple system for periodic reports on costs and income, solving both financial and managerial tasks.

All resources spent on a work operation constitute its cost. At the end of the first stage of the analysis, all the work of the enterprise must be accurately correlated with the resources necessary for their implementation. In some cases, the cost item clearly corresponds to some kind of work.

However, a simple calculation of the cost of certain works is not enough to calculate the cost of the final product. According to ABC, the work operation must have an index-measurement of the output result - the cost driver. For example, the cost driver for the “Supply” cost item will be “Number of purchases.

The second stage of application of the ABC is to calculate the cost drivers and indicators of their consumption of each resource. This consumption figure is multiplied by the cost per unit output of the work. As a result, we get the amount of consumption of a particular work by a particular product. The sum of consumption by a product of all works is its cost price. These calculations constitute the 3rd stage of the practical application of the ABC methodology.

I note that the presentation of an enterprise as a set of work operations opens up wide opportunities for improving its functioning, allowing for a qualitative assessment of activities in such areas as investment, personal accounting, personnel management, etc.

Corporate strategy implies a set of goals that an organization wants to achieve. The goals of the organization are achieved by the performance of its work. Construction of a work model, determination of their relationships and execution conditions provide a reconfiguration of the business process of the enterprise for the implementation of the corporate strategy. ABC, ultimately, increases the competitiveness of the enterprise, providing accessible and operational information to managers at all levels of the organization.

An even greater effect in cost optimization can be achieved by using ABC in combination with another technique, namely - the concept of life cycle costing (Life Cycle Costing - LCC).

This approach was first applied in the framework of government projects in the defense industry. The cost of the entire life cycle of a product, from design to retirement, was the most important indicator for government agencies, since the project was funded based on the full cost of the contract or program, and not on the cost of a particular product. New production technologies have provoked the transfer of LCC methods to the private sector. There are three main reasons for this transition: a sharp reduction in the life cycle of products; increase in the cost of preparation and launch into production; almost complete definition of financial indicators (costs and incomes) at the design stage.

Technological advances have shortened the life cycle of many products. For example, in computer technology, the time of production of products has become comparable to the time of development. The high technical complexity of the product leads to the fact that up to 90% of production costs are determined precisely at the R&D stage. The most important principle of the concept of life cycle costing (LCC) can thus be defined as “forecasting and managing the costs of manufacturing a product at the design stage”.

Successful work in the conditions of global competition requires not only constant updating of the range and quality of products, but also a thorough analysis of the enterprise's activities to reduce unnecessary or duplicated functions (works). Often, an organization, in pursuit of cost reduction goals, adopts a policy of total cost reduction. Such a solution is the worst, since under such a policy, all work is subject to reduction, regardless of its usefulness. A general reduction can reduce the performance of essential work, which will lead to a deterioration in the overall quality and productivity of the enterprise. The drop in productivity, in turn, will lead to another wave of layoffs, which will once again reduce the efficiency of the organization. Attempts to get out of this vicious circle will force the company to raise costs above the initial level.

The ABC methodology allows the enterprise not only to reduce costs line by line, but to identify excess resource consumption and redistribute them in order to increase productivity.

Thus, this method has a number of advantages:

1. It allows you to analyze overheads in detail, which is of great importance for management accounting.

2. The ABC method makes it possible to more accurately determine the cost of unused capacity for periodic write-off to the profit and loss account. The unit cost estimated using this method is the best financial estimate of the resources consumed, as it takes into account complex alternative ways of determining the relationship between production and resource use.

3. The ABC method allows you to indirectly assess the level of labor productivity: a deviation from the amount of resources consumed, and therefore from the release or comparison of the actual level of cost sharing with the volume that could be possible with real resource provision.

4. The ABC method not only delivers new information about costs, but also generates a number of non-financial indicators, mainly measuring the volume of production and determining the production capacity of the enterprise.

Based on the foregoing, we note that introduction of the ABC system into the practice of Russian enterprises would provide a reliable calculation of the cost of specific products, which will significantly increase the objectivity of assessing the profitability of products. Ultimately, the use of ABC will increase the competitiveness of the enterprise, since it provides access to operational information at all levels.

“No one should believe in anyone like the Lord God or his prophet.
It’s enough just to listen to a person who makes you think.”
Peter Oppenheimer, English economist

Janus - the two-faced god in Roman mythology - was considered the patron of doors, entrances and exits, as well as all beginnings in time. It was he who, before the advent of the cult of Jupiter, was the deity of the sky and sunlight, opened the heavenly gates in the morning, releasing the sun into heaven, and closed them at night. The Romans believed that Janus taught people chronology, crafts and agriculture. It is known that one face of Janus was young and the other old. He was both good and bad at the same time. But let's move from Roman mythology to finance and management accounting.

In management accounting, there are two costing concepts: the absorption costing method and the variable costing method, which, like the two-faced Janus, do not allow one to relate unambiguously to issues of cost and pricing. ABC costing (Activity Based Costing) has the greatest duality in management accounting, since it can be designed both according to the principle of greater absorption of costs, and according to a method that will be closer to the calculation of variable costs. In such a situation, the question arises: is functional cost accounting a tribute to fashion or time?

ABC costing is spoken about in different ways. Some admire him and are convinced that any management accounting system should be broken down into small processes, on the basis of which the cost is determined. But there is also an opposite opinion: ABC costing is too complicated, so it makes no sense to describe the processes in detail. Some are sure that the essence of ABC costing is that “Nadezhda Petrovna’s run along the corridor with an invoice costs 7 hryvnia 55 kopecks and should be attributed to one or another batch of products.” That is why he, like Janus, has two faces.

Let's see how management accounting treats the use of ABC costing, but first, let's remember what types of costing exist (Figure 1).

Evolution of costs (from absorption to ABC costing)

At first, the financiers were convinced that all the costs of the enterprise, one way or another, should be included in the cost price. This method was called cost absorption (cost absorption) and is still used in accounting (some are trying to use it in management accounting).

From the early 1940s to the late 1980s, the variable cost method became popular, according to which only variable costs are taken into account in the cost of products. At the same time, it does not matter what these costs were: part of the cost of production or, for example, part of overhead costs, like sellers' commissions - in any case, they were considered variable and included in the cost. In addition, there is nothing to hide, it is the method of calculating variable costs that is the system on the basis of which the most objective decisions are made.

The next in the period 1980-1990. was the concept of the so-called ABC-costing. Thanks to the development of IT, it has become possible to see the individual processes of the company, analyze them and understand how much they cost. The cost of processes, which cannot be dispensed with in the production and sale of products, clings to the cost of goods.

Another newfangled concept that became popular in the 1990s was target costing, sometimes referred to as the market standards paradigm. In this case, everything is generally turned upside down, if only because the financiers are trying to achieve a certain target cost.

Let's look at the price formation process in each of the above paradigms. The first paradigm of the era of the industrial revolution was valid until the 1940s. During this period, the commodity filling in the world was not yet so large, so the likelihood that all the goods would be bought was high. In those years, when calculating the cost, direct material and labor costs were used, overhead production and non-production costs clung with a certain coefficient. As a result, the total cost was formed, which already included both management costs and cost costs. The desired profit was sometimes added to this, and so the price was formed, based entirely on costs (table 1).

The absorption paradigm, despite the fact that it persists in accounting, could not survive on the market for a long time: an expensive product cannot compete in the market with cheaper ones. To what level can the price be reduced? The cost absorption paradigm did not provide an answer to this question.

Financiers began to conduct calculations differently. The variable component of all costs began to be correlated and calculated separately, including direct material and labor costs, the variable part of overhead non-production costs. This is how the variable cost was determined (Table 2). In theory, the company should not set the price below 125 monetary units. But selling a product at a price higher than 125 makes a profit. Under these conditions, all fixed costs are summed up separately and the product margin should cover them. Table 2 shows that the margin is: $203 - 125 = 78. As long as the product has a positive margin, it should be left in the product portfolio and continue to work with it. It should be noted that the variable cost calculation method has become a step forward compared to the absorption of expenses, and it has begun to be actively used in management accounting.

After the variable cost paradigm, which, in general, everyone was satisfied, a new paradigm came - ABC. It turned out that many companies have problems with fixed costs: the margin seems to be very high (variable costs are low and the price is high), but the bulk of the costs are actually fixed. At this stage, the calculation of variable costs began to slip. The owners of the company were hardly satisfied with the results when the income statement noted that with a fixed cost of several million, the margin was also several million. In this case, it is not clear whether this or that product needs fixed costs or not. Thus, the need for ABC costing arose, which made it possible to resolve questions regarding what processes the company uses to manufacture and sell products, how much they cost, and what costs accumulated within these processes can be used for cost.

In ABC costing, not all costs are variable. A significant part of them is fixed, but they can be variable in proportion to some processes associated with business activity factors.

As shown in Table 3, the overhead costs accumulated at the unit level depend on the number of hours spent on the production of the product. Costs at the level of a complex of products (batch or order) can be the costs of a company that purchases several products in one batch. There are also costs accumulated at the level of product diversification (product range), for example, the costs of developing anti-crisis products should be attributed specifically to them. In addition, there are costs accumulated at the level of the complex of clients and customers. When a company is going to, say, celebrate the holidays with its biggest customers, that expense will be part of the customer-level cost.

How do companies get to this point?

At one time, when absorbing costs, everything was simple: fixed costs were collected together, divided into the number of machine hours and, on the basis of this, were “smeared” between products. However, there was a lack of precision.

Then the financiers decided, they say, we won't think like that anymore. You need to be smarter and try to distribute costs depending on the characteristics of the operating unit. For example, protection costs will depend on the number of square meters that are protected. As a result, a system was created in which the product was borne not only by single overhead costs with a certain coefficient, but also marketing costs with their own coefficient, financial department costs with their own, HR costs with their own. This is how the norms of individual centers arose, according to which overhead costs were distributed.

It soon became clear that centers are organizational units within which certain processes take place. By the way, some of the processes can be considered useful, creating added value, and some can not. At this stage, it was decided to isolate them separately, characterize them as business activities and transfer overhead costs depending on the part of this activity. They began to analyze different types of activity and determine their cost in order to cling to products. For this reason, ABC costing requires considerable detail and understanding of all processes occurring in each department.

When is ABC costing needed?

The functional cost system is used when the company is characterized by:

• a large number of products;
• many supporting processes;
• standardized process;
• periodic allocation base;
• frequency of changes in costs.

Let's turn to tables 4 and 5. Each company produces three products - Alpha, Beta and Gamma. Both of them are unprofitable at the level of $100030. Company A has a fixed cost of $133,080. Margin data for each segment of this enterprise does not provide an answer to the question of what processes are used.

Company B is also unprofitable at $100,030, but its marginal profit in each of the directions, as well as fixed costs, is much higher than that of company A.

Based on the data in the table, it is easy to determine that Company B needs ABC costing more, because its fixed costs are much higher and it is difficult to understand which of them make up the cost structure. To do this, you need to divide $269,080 between the company's processes and analyze who is the client of certain processes and who uses them. By the way, an indicator that may indicate the need for ABC is the operational leverage (OL), which is calculated as the ratio of marginal profit to net profit and reflects the measure of the company's operational risk. So, for company A, this figure is:

OLA = 33050 / (-100030) = -0.3304;

for company B it is equal to:

OLV = 169050 / (-100030) = -1.6899.

The need for ABC costing increases as the module of this indicator increases.

ABC costing technology

The first question that arises when using ABC costing is: with what coefficient should the costs be distributed? There are several options. For example, with coefficients between which there is an obvious physical connection - the more materials a department uses, the more purchasing costs it has and the higher the wages of people who are engaged in these purchases.

Therefore, purchasing costs can be carried forward depending on the cost of materials. In addition, there are also objective and investigative factors: if more people work in the department, then HRs have more work. Why not transfer HR costs by man-hours?

There are also some points that the company sets itself. For example, a certain decision is made, on the basis of which standards are determined. Thus, advertising costs are allocated based on the percentage of sales for each financial reporting center. In addition, complex overhead cost transfer coefficients are sometimes constructed, which depend on complex formulas that take into account the values ​​of several factors at once.

In addition, there is an arbitrary relationship, say, uniform distribution means fairness. And why not transfer the marketing costs equally to all the products that the company has, so that no one is offended. True, in this case, products with low margins will suffer.

Nor should the importance of the strategic allocation of overhead costs be underestimated when they are treated as required by the strategy. Moreover, in this case, justice should be forgotten.

Cost drivers

The list of cost drivers can be endless. Among other things, it may include, for example, the number of flowers on the windowsill, etc. People have come up with quite different cost drivers, but the most common and classic ones are:

• number of machine hours;
• number of man-hours;
• Cost of materials;
• the number of pieces of manufactured products;
• the number of square (or cubic) meters in the room;
• the total volume or part of the income received from the sale of products of a certain type;
• the number of operations performed in connection with the production of the product;
• specific technical characteristics of the product;
• the part of the marginal profit that this product brings in the total marginal profit.

Building an ABC costing system

To build an ABC system, you first need to analyze all types of company activities. To do this, it is necessary, at least in general terms, to present a list of processes that occur with a certain periodicity. Then you should determine what costs the company incurs and whether they can be linked to the list of processes. After that, set the result for each activity. Their costs will form cost pools. After implementing all these actions, it will be possible to link costs to results.

Consider how this happens, say, in a company that is engaged in the general distribution of goods from one manufacturer through a centralized warehouse and a network of regional warehouses to branded end points of sale. How will this delivery take place? First, a large batch of products will go from the factory to a centralized warehouse (for example, in Kyiv), then, after reloading into smaller batches, they will be transported to regional warehouses, and from there, after the next reorganization, they will be transported in small batches to the end stores of the region (Figure 2) .

The task seems to be simple: to deliver the goods, but this process includes a huge number of service sub-processes. To calculate the cost of delivery based on ABC costing, you need to understand which costs are present during transportation, and which are in warehouses. As for delivery, the main costs at this stage will include drivers' wages, vehicle depreciation and fuel. Expenses in warehouses - wages of all personnel, depreciation of lifting and transport mechanisms, etc. After different pools of expenses have been identified (delivery pool to the central warehouse, to stores, pools of warehouse terminals), the question arises of what indicators can be used to identify each type of activity (all expenses should be linked to different types of activity). The next stage is the definition of an indicator that would indicate the quality of work performance. It turns out that on the route this indicator will be ton-kilometers, in the warehouse - overloaded tons. If you know the number of tons and ton-kilometers at each stage of delivery, as well as the unit cost of these indicators, then, knowing the weight of the goods and the distance to which it should be delivered, you can determine the cost of delivery services.

To organize accounting for pools, it will be necessary for each of them to open an account similar to a regular overhead account. On the debit of such accounts, the costs attributed to this pool will be accumulated, and on the credit, these costs will be transferred with a coefficient that characterizes the pool’s business activity for the cost price (in our case, transportation). You will have to open a pool for each route and several pools for each individual warehouse. You can immediately foresee the "joy" of those accountants who will have to do all this work.

Benefits and pitfalls of ABC costing

Analyzing the benefits of cost-benefit analysis of costs, it should be remembered that within such a system:

• the company pays attention exclusively to the main processes;
• all costs are considered as components of the cost;
• the company abandons the short-term division of costs into fixed and variable and focuses on what processes are needed to create a product;
• it becomes possible to identify high-cost activities, as well as those that do not create value.

The following circumstances act as peculiar pitfalls:

• ABC costing requires fairly heavy cost absorption—spreading out a large amount of fixed costs;
• additional finance department resources are needed;
• this system can be implemented in different ways: you can make every effort and paint all the pools of expenses very accurately, or you can do it not very diligently;
• the result obtained, most likely, will not show to what level the price of the product can be reduced;
• a company can get an accurate result, but it happens that too much effort is spent on it;
• the use of ABC costing does not require a concentration on individualized products that are produced for the client, but forces you to follow the principle: "Produce a mass product." But will it be compatible with the company's marketing strategy?

Of course, it is almost impossible to overestimate the role of the cost-benefit system of cost analysis: in some cases, it is simply indispensable to do without it. Therefore, companies should use not only variable costing, but also ABC consulting, and also determine cost pools. In addition, it is necessary to allocate all costs by pools and stop in time when detailing ABC costing, because ABC costing, like Janus, is twofold and ambiguous.

Since this is not all that can be said about ABC costing, the authors plan to return to this topic in the future.

Mikhailo Kolisnyk, teacher of Kyiv-Mohyla Business School
Alexander Rizenko, project editor

The Activity-based costing method, ABC (cost accounting by type of activity) was developed by American scientists R. Cooper and R. Kaplan in the late 80s and is now widely used in the West.

The ABC method is a technology that goes beyond simple cost accounting and becomes an effective cost management technology. The three main reasons a business needs cost information are:

1. Inventory valuation.
2. Cost control and evaluation of the effectiveness of the enterprise (business areas, divisions).
3. Making managerial decisions, for example: What price to set?

What products to continue and what to stop? Produce or buy components?
The significance of the problems that managers solve places demands on cost information. If the costing system does not provide sufficient accuracy of the resulting estimates, the consumption of resources for individual types of products will be distorted, and then managers may refuse to produce profitable products or, conversely, continue to produce unprofitable ones.
Where cost information is used to establish a selling price, underestimating product costs can lead to unprofitable activities, while overestimating it can result in overpriced products that are not in demand and the loss of profitable ones. activities.

CHANGES IN COST STRUCTURE

At the moment, it is hard to imagine an industry in which there would not be a significant shift from the use of manual labor to the use of mechanisms and technology. In the cost structure, this change was reflected in the fact that labor costs decreased, and fixed costs increased due to increased depreciation of equipment.
In addition, the operation of modern production equipment is more accurate and optimal compared to manual labor, i.e. the amount of production waste and, accordingly, the amount of direct materials consumed decreases over time, which in turn leads to a further decrease in direct costs.
In modern conditions, there is also a constant increase in the costs of customer service, marketing, general management, and personnel management.
Thus, the share of overheads in total costs increases, so any change in the method by which overheads are allocated can have a significant impact on decision making.

DIFFERENT APPROACHES TO COST CALCULATION

The basic principle of cost calculation is the division of costs into direct and overhead1 and the assignment of both types of costs to products (cost object).
As a rule, in practice, there are no problems with the distribution of direct costs (they can be directly attributed to the cost of a particular cost object).
Overhead is more difficult. Traditionally, overhead costs are allocated to individual products in proportion to the size of labor costs, machine time (indicators characterizing the volume of production). However, this approach does not take into account the variety of operations that generate costs. For example, when allocating non-manufacturing overheads using the traditional method, you can use the same machine hours that were used to allocate manufacturing overheads. The advantage of this method is simplicity, but the disadvantage is that there can be a significant difference in the consumption of resources needed to provide services to certain consumers. Customer service costs can be related to the size and frequency of orders received, the distribution channels used, the size of the customer (large customers require additional services), the geographic location of the customer (it may be more difficult to deal with overseas customers than with domestic ones). The ABC method avoids such errors.
A feature of the ABC method is that in each case, other indicators (distribution bases) are used to distribute overhead costs, which are different from the volume of production. The ABC approach identifies the types of activities (processes, operations) that cause the occurrence of costs, and explores the main cost drivers for these types of activities.
Cost driver- is a factor that best shows why resources are consumed in the course of a certain activity and, therefore, why this type of activity leads to costs.
When activities and cost objects are defined, this information is used to allocate overhead costs to cost objects.
Example. Stone processing plant, specializes in the production of granite products. The applied technology for the production of granite products involves several stages:

1. Sawing a granite block into slabs (boards of various thicknesses - "semi-finished products" for the production of products).
2. Invoicing (grinding, polishing, etc.) of slabs (if necessary).
3. Sawing slabs into tiles, other products (according to the buyer's order).

The production of slabs and tiles is carried out in different workshops using the appropriate equipment.
The duration of sawing a granite block is on average 4.5 days.
Sawing up the block is carried out using metal shot (auxiliary material). Uneven consumption of shot in terms of time and quantity (technological reasons), supply of a solution containing shot to the entire surface of the block, respectively, the impossibility of directly attributing the cost of shot per unit of sawn slabs determined their distribution.
Using the ABC method, we establish cost carriers (individual distribution bases) for shot consumption and some other operations (Table 1).
Naturally, the process of determining the main activities and cost drivers will be individual for each enterprise, since activity-based costing aims to best describe the behavior of costs.

DESCRIPTION OF THE STEPS RELATED TO THE APPLICATION OF ACTIVITY COST ACCOUNTING

The presented approach is a synthesis of ABC methods proposed and described by various specialists. In practice, the approach is being finalized (changed) taking into account the specifics of a particular enterprise.
Step 1. Determine the main activities (processes, operations) associated with production
Example. At the enterprise "O" the following types of activities related to the production of granite products can be distinguished: setting up equipment, transporting raw materials and materials from the warehouse to production workshops, checking the quality of manufactured products (figure). In the case of traditional accounting, such activities and the costs associated with them would be attributed to specific divisions of the enterprise (warehouse for raw materials and materials, quality control department, repair site). Although these transactions are not related to the volume of output, their costs would be allocated to all products using an inappropriate distribution base (related to the volume of production). As a result, distortions would arise and such information would be useless in making managerial decisions.
Step 2 Determine the costs (cost pools) for each activity identified in step 1. The purpose of this step is to determine how much the business spends on each activity identified in step 1.
Cost pool- grouping/combining individual cost items. Part of the resources can be directly assigned to specific types of activities, the other part (the cost of lighting and heating - indirect costs) using cost drivers to several types of activities. The greater the number of costs allocated to activities, the more approximate and less useful the cost information becomes.
In our case, the cost pools were: for setting up equipment - UAH 10.0 thousand, for transporting raw materials and materials from the warehouse to production workshops - UAH 35.0 thousand, for checking the quality of manufactured products - UAH 15.0 thousand .
In table. 2 provides information on the costs that form the cost pool of each of the business areas.

Cost Accounting Scheme by Activity

Tab. 1. Structure of total costs

Step 3 Define cost drivers for each activity identified in step 1.
Step 3 a. Select the cost pools and cost objects that will be used in this cost accounting system.
This step reflects the search for some compromise in the application of the cost accounting system by activity. Realizing that the ABC method is a somewhat complicated way of including costs in the cost price and taking into account the current time constraints on the spreading of costs using the ABC method (at a particular moment), in the example of cost allocation by business lines, as a conditional cost allocation base for determining the average cost per 1 m2 of granite tiles, we took the volume of production (Table 2).
Note that the outcome of the cost accounting process will always depend on the choice of cost object.
In the example with the costs of service departments (raw materials warehouse, quality control department, repair site), the following cost carriers are defined: for equipment setup - the number of adjustments, for the transportation of raw materials and materials from the warehouse to production workshops - the number of transportations, for checking the quality of manufactured products - the number of inspections of batches of products (figure).
Step 4 Calculate a specific cost-bearer rate for each cost pool.
To do this, you can use the following formula, which is similar to the formula for calculating the production overhead rate in the case of a traditional cost accounting system.

In the considered example of the distribution of costs by business areas (Table 2), the rate of the cost bearer for the cutting section was 81 UAH. (122.0 thousand UAH / 1500 m2).
Step 5 Apply the resulting cost-bearer rate to the products produced.
In case of adjustment of the equipment2, the total cost for the block sawing section will be UAH 299.3 thousand. or 111 UAH. per 1 m2 of sawn slabs.

• Direct costs for the section of strip sawing of blocks - UAH 294.0 thousand.
• Costs associated with setting up equipment for the block sawing section - UAH 5.3 thousand. (UAH 667 * 8 adjustments).

Once again, we note that the use of the ABC system is justified under the following conditions:

• When production overheads are high enough compared to direct costs, especially direct labor costs.
• When there is a wide variety of products produced.
• When there is a significant variety of overhead resources (indirect labor, indirect materials, etc.) used in the production of products.
• When the consumption of overhead resources does not directly depend on the volume of production.

The information generated by the ABC method can open up opportunities to increase profitability in a variety of ways, many of which are long-term. For example, the ABC method often reveals that small-scale products are relatively more expensive to manufacture and therefore unprofitable at current price levels. This situation can be resolved in several ways. The first way might consider stopping production of small batches and focusing on supposedly more profitable high volume products. Another approach may be to explore how the manufacturing process can be organized so that the costs of producing small batches of products approach the costs of producing large batches.

In recent decades, a new direction in management accounting has been actively developing in foreign theory and practice, covering costing (activity-based costing) and budgeting (activity-based budgeting). These systems supplement the management system based on the process approach (ABM-management, activity based management) or are used for other purposes. The information generated by the costing system "AVS-costing" is intended for strategic management decisions in the field of pricing and selection of promising products for production, for reengineering of business processes, etc. It can also be used for operational management. In this case, the ABC methodology for allocating indirect costs is introduced into the traditional absorption costing system.

We can talk about the evolution of the ABC costing system, since invented at the beginning of the 20th century. and forgotten for a while, the accounting tool received a new incarnation and development in the 1980s. There is a discussion about the history of the development of the ABC, so this problem can be taken as the basis for NIRS. The question of the origin of the ABC is debatable: is it a new phenomenon or a methodology forgotten for a while, born earlier? Two points of view can be distinguished. Representatives of the first are unanimous regarding the time of the creation of the ABC (80s of the XX century), but do not quite agree on the recognition of the authorship of the new accounting technology. So, J. Innes, F. A. Mitchell, Ya. V. Sokolov are called the creator of the LAN R. Kaplan; O. E. Nikolaeva adds R. Cooper; in the Oxford Explanatory Dictionary, the appearance of the LAN is associated with the publication in 1987 of the book by T. Johnson and R. Kaplan "The Ups and Downs of Management Accounting". However, adherents of a different point of view believe that the foundations of the ABC costing system methodology were formed in 1923. G. J. M. Clark in his work "A Study in the Economics of Overhead Costs".

Causes of ABC. The main reasons for the spread of ABC in the practice of companies are due to the following:

• 1) the role of the "total cost" indicator in the strategic business management and with the solution of the problem of reducing its conventionality;
• 2) a steady upward trend in the share of indirect costs in the cost of production;
• 3) processes of diversification of commercial activities of economic entities;
• 4) the fact that the accounting methodology using a single base for the distribution of indirect costs increases the degree of conventionality of the "full cost" indicator, since it often makes it impossible to establish a causal relationship between products and the resources they consume.

The first reason for the spread of ABC is associated with an increase in the degree of uncertainty in the business environment, risks and competition. Under these conditions, strategic management has acquired particular importance, for which information on reduced costs becomes irrelevant, since fixed costs take on the character of variables over a long period of time.

The degree of conditionality depends on the share of indirect costs in the cost of production, therefore, the trend of increasing costs for maintenance of production and management determined the second reason for the development of ABC. The justification for this trend and examples of the cost structure are discussed in paragraph 3.2 when characterizing the classification group "direct and indirect costs".

Why did the increased diversification of activities affect the development of ABC? If at the beginning of the XX century. enterprises specialized in a particular product, the increased uncertainty of the external environment and risks led to the process of diversification of activities, resulting in a significantly expanded range of products. This reduces the ability to identify consumed resources directly with products and requires improved cost allocation methodology.

Reasons of a general nature would not be so significant for the further development of the methodology of calculation, if the accounting methods were adequate to the new tasks of enterprise management. However, the approach adopted in accounting to the distribution of indirect costs in proportion to one distribution base does not allow reflecting a causal relationship between all groups of distributed costs and the object of calculation. Moreover, in practice, the distribution base is chosen based not on the logic of a causal relationship, but on the basis of the convenience of obtaining ready-made information from accounting registers.

ABC is a complex and time-consuming costing system. And despite the needs of management, it would not have developed if it were not for the increased capabilities of information technology. The spread of ABC was ensured by a significant reduction in the cost of information processing due to the development of modern information systems.

The nature of ABC. One of the names of the ABC-costing system - two-stage costing - reflects an essential feature of ABC, associated with two steps in the distribution of indirect costs. The first step is the distribution of indirect costs among the operations of business processes, the second is the distribution but the final objects of calculation, for example, products. Here one of the fundamental differences between ABC costing and traditional costing systems appears, which is that the concept of "operation" is introduced into the accounting process, which is reflected in the name of the system - "activity-based costing", i.e. transaction costing. A business process activity is an event, task, or unit of work that has a specific purpose. ABC-costing uses the cost of these operations as an intermediate step for attributing costs to products (works, services) and as information of independent value.

The two-step procedure is a manifestation of one of the concepts underlying ABC costing. If, when using traditional costing systems, it is considered that resources are absorbed by products (Fig. 6.4, but), then in the ABC system, resources are absorbed by operations; then the cost of operations is absorbed by products (Fig. 6.4, b).

Rice. 6.4. The logic of the movement of costs in the traditional approach to costing (i) and in the ABC approach(b)

The ABC core vocabulary includes the following key terms:

• group of indirect costs;
• cost driver (otherwise cost carrier);
• intermediate costing object;
• final costing object.

The concept of "group of indirect costs" reflects the cost of the resources used (materials, etc.), which must be attributed to the objects of calculation, distributed in a certain way. This concept differs from the traditional interpretation of the "group of indirect costs" in that the ABC system distinguishes numerous groups of homogeneous indirectly distributed costs, in relation to which it is possible to find a cost driver that reflects a causal relationship between costs and calculation objects.

The key concept "cost driver" is similar to the familiar term "cost allocation base". From the point of view of the distribution technique, there are no differences - this is the amount in proportion to which indirect costs are distributed. From a concept standpoint, yes. The concept of "cost driver" refers to one of the provisions of the ABC concept: "indirect allocation procedures are carried out on the basis of identified causal relationships." Thus, the word "cost driver" means a causal relationship, a factor influencing the cost of the operation, then the final costing object. The term "base of distribution", due to its too general nature, has no such meaning, especially if we take into account the practice of many enterprises that use the wages of production workers as the basis of distribution.

The ABC costing procedure is described in paragraphs 4.2 and 7.2 in relation to solving specific problems.

Application practice. ABC costing has a wide range of applications, including the rationale for decisions on assortment management, pricing, new product launches, customer base selection based on customer profitability, evaluation of responsibility centers, and inventory valuation. Information is used in budgeting, in reengineering of business processes.

Example 6.6 provides an overview of the practice of management accounting tasks solved on the basis of ABC; Example 6.7 shows the scope of the ABC approach to costing and control.

Example 6.6

The results of the review of the activities of companies using ABC-costing in their activities are given in Table. 6.11.

Table 6.11

Usage ABC costing companies

Example 6.7

The popularity of the use of ABC in various fields of activity is visible from a survey compiled on the basis of a survey of commercial companies and organizations (Table 6.12). It is noteworthy that industrial enterprises use the ABC approach less frequently than public organizations.

Table 6.12

Application ABC in various industries

In Russia, this approach to costing is beginning to gain popularity. For example, a frozen food business applied the ABC methodology to justify a strategic decision to outsource convenience foods; diversified enterprises, including those providing services in the field of IT - to determine the effectiveness of business processes and projects. However, there is no wide practice of applying this approach yet, while abroad it is used in companies.

ABC information can be used both for current management and for making strategic decisions. At the level of tactical management, this information can be used to form recommendations for increasing profits and improving the efficiency of the organization. On a strategic level, as assistance in making decisions regarding the reorganization of an enterprise, changing the range of products and services, entering new markets, diversifying, etc. ABC information shows how resources can be reallocated for maximum strategic benefit.

The logic of the ABC system consists in a more detailed structuring of cost groups, finding cause-and-effect relationships formalized in cost and operation drivers. The capabilities of modern information systems allow you to perform accounting procedures quite efficiently. Prospects for the development of the ABC costing system are related to its use for evaluating the activities of responsibility centers; and as an information basis for product and process development. The last provision requires the integration of the ABC methodology and functional cost analysis.

• Innes J., Mitchell F. A Practical guide to Activitv-Based Costing. L.: Kogan Page Ltd, 1989.
• Sokolov Ya. V., Sokolov V. Ya. History of accounting. M.: Finance and statistics, 2004.
• Nikolaeva O. E., Alekseeva ABOUT. IN. Strategic management accounting. M.: Editorial URSS, 2003.
• Johnson H. T., Kaplan R. Relevance Lost: The Rise and Fall of Management Accounting. Harvard: Harvard University Press, 1987.
• Shank J., Govindarajan V. Strategic cost management: Per. from English. St. Petersburg: Business Micro, 1999.
• The name of the costing system "activity-based costing" is translated by Russian researchers in different ways, for example, costing by type of activity, costing by operations, costing by functions, FSA, etc. Let us consider the applicability of these names based on the analysis of the essence of the activity-based costing method, and also the interpretation of the term “type of activity” that is customary for the domestic economy (the types of activity of a company are usually understood as, for example, the production of juices, building structures, etc.). The essence of the ABC method and its fundamental difference from other costing systems are not in the consolidation of accounting objects into types of activities, but in the fact that accounting objects are divided as much as possible into business process operations (of course, taking into account the efficiency rule). Then the cost of these particles is synthesized either into the cost of production or into the cost of processes that were previously dissected. And these fractional components of the processes, which in turn consist of actions, become the objects of calculation.
• Managerial accounting 10th ed. South-Western Thomson Learning, 2003. P. 130.
• Louderback J.G., Holman J.S. Managerial accounting 10th ed. South-Western Thomson Learning, 2003. P. 130.

The Activity Based Costing (or ABC) method has become widespread in European and American enterprises. Literally, this method means activity cost accounting (functional cost accounting).

It arose as a result of changes in the economic structure of costs, in particular, the views on the methodology of cost accounting and calculation of the cost of production have changed, since traditional production costing systems were created at a time when most companies produced a limited range of products and mainly in production costs included the cost of basic materials, labor costs of key production workers. The costs of production maintenance and management, which are mostly overhead, were small, so the distortion of production costs due to their distribution in proportion to the wages of production or the amount of material costs for products was insignificant. The cost of information processing, on the contrary, was quite high.

The search for new methods for obtaining objective information about costs has led to the emergence of the ABC method, or "AB-costing", according to which the enterprise is considered as a set of work operations that determine its specifics. In the process of work, resources (materials, information, equipment) are consumed, some result appears. Accordingly, the initial stage of applying the AB-costing method is the determination of the list and sequence of work in the enterprise by decomposing complex work operations into simple components in parallel with the calculation of resource consumption.

The costing system under consideration is a new direction for domestic accounting, and the approach to costing by type of activity is due to the awareness of the inadequacy of reflection by traditional methods of cost allocation of modern complex production processes. Calculation by type of activity is especially relevant for organizations providing educational services. The ABC method is one of the directions for the distribution of overhead (indirect) costs. The application of the AB-costing method provides for a slightly different terminology than in the domestic accounting system. one)

A cost allocation group is a detailed group of indirect costs that can be identified with specific activities.

For example, the salary of a safety engineer is 28,800 rubles. per month. During this period, he performs four types of work: briefing - 100 hours, checking the preparation of workplaces - 14 hours, drawing up a report - 8 hours, dismantling emergency situations - 22 hours. A total of 144 hours of work. Indirect costs, or cost distribution group, are salaries with accruals. 2)

An operation is an event, task, or unit of work that has a specific purpose. ABC uses the cost of these operations as an intermediate step for attributing the costs of products (works, services) and as information that has independent value. In our example, the operation is briefing 100 hours, checking the preparation of workplaces - 14 hours, etc. 3)

Operation Center - a group of operations united by some technological or organizational feature.

Operations centers can be activities related to the operation of equipment, its current repair, etc. After the inclusion of operations in the accounting system, the resources consumed by each individual operation (center of operations) during the reporting period are established. In our example, the operations center equals operations.

The degree of detail (grouping) in each specific case depends both on the specifics of the technology and the organization of production and management, and on the presence of technical, informational, time and other restrictions. The test of effectiveness will be decisive, i.e. the benefit of detailing information, as in any other system of calculation, must exceed the cost of it. 4)

A cost driver, or cost allocation base, is the link between a group of overhead costs and an operation. For example, the costs associated with the work of a safety engineer can be related to the performance of the scope of duties through the amount of time spent on types of work. five)

The rate of the cost carrier, or the distribution coefficient of the first stage - the ratio of the group of distributed costs to the value of the cost carrier. If we continue the previous example, then the distribution coefficient of the first stage will be equal to the ratio of the costs associated with the work of a safety engineer to the total amount of time worked by him, i.e. 144 hours. The distribution coefficient is 200 * 28,800 rubles: 144 hours = = 200 rubles. 6)

The cost of the operation is the total amount of expenses aimed at the implementation of homogeneous operations. In the part of the salary of the safety engineer, it will be equal to the distribution factor of the first stage, multiplied by the value of the distribution base related to this operation.

In our example, the cost of the instruction operation is equal to

200 rub. 100 hours \u003d 20 LLC rubles;

the cost of preparing jobs -

200 rub. 14 hours = 2800 rubles;

the cost of dismantling emergency situations -

200 rub. 22 hours = 4400 rubles;

cost of reporting

200 rub. 8 hours = 1600 rubles 7)

The carrier of an operation, or the cost allocation base of an operation, is a quantitative measure of the workload of an operation. In our example, the carrier of the operation is expressed by the number of briefings - 40 units. and the preparation of seven jobs.

The rate of the carrier of the operation, called "preparation of jobs" (or coefficient), will be:

K2 = = 400 rubles. 8)

The rate of the carrier of the operation, or the distribution coefficient of the second stage - the ratio of the cost of the operation for the period to the total value of the carrier of the operation for the same period. In this case, the specific indicator of the cost of the briefings carried out is calculated. The coefficient will be:

K, \u003d -- \u003d 500 rubles.

The ABC system provides for a two-stage distribution of costs and, accordingly, there are two calculation objects - intermediate - operation; final - production. Let's say that the products (lamps) are made by 20 workers. The share of the salary of a safety engineer attributable to the production of fixtures is equal to the cost of the operation performed (500 rubles) multiplied by the quantitative expression of the distribution base (20 people). In our example, the cost per month for the briefing operation performed by the safety engineer and related directly to the manufacture of fixtures is 10,000 rubles, or

500 rub. 20 people = 10,000 rubles.

The cost of the operation "preparation of three jobs assigned to the production of lamps" will be:

400 rub. 3 work places = 1200 rubles.

Examining the activities of the organization, Ronald Coase (Nobel laureate in economics) concluded that the effectiveness of work depends on the ratio of costs for similar business operations within the company and in the free market. If the costs of an operation inside the enterprise are less than those outside it, it makes sense to keep the staff in the structure, to invest resources within the enterprise. If the need for the work of individual specialists is small, it is more profitable to pay for an external service. Simply put, the economics of transaction costs allows you to understand why firms are created and why their management is based on a particular organizational structure.

The ABC method is used in combination with methods of cost accounting and costing of products of different levels. In Russia, it is still only being used. Abroad, in the management of firms, information is used that is obtained by applying the AB-costing method for current management and strategic decisions.

In many organizations, the ABC method is considered not as an accounting method, but as a management tool. Cost management in the context of individual operations, not products or even cost centers provides new opportunities for effective planning and cost control and reduction.

It is generally accepted that ABC information can be used both for current management and for making strategic decisions. At the level of tactical management, this information can be used to determine ways to increase profits and improve the efficiency of the organization, at the strategic level - in making decisions regarding the reorganization of the enterprise, changing the range of products and services, entering new markets, diversifying, etc.

The application of the ABC method is also known in inventory management. This method classifies stocks according to some specific indicator of importance, usually according to the annual volume of use of this type of stock: raw materials, materials, semi-finished products in monetary terms. Depending on the importance of stocks and the size of working capital used for their acquisition, activities for control and management of stocks are distributed among managers.

The ABC method is used to improve the performance of enterprises in various fields of activity. One of its main uses is in the service industry, where the manager focuses on the most important aspects of service, dividing them into the most important, important, and not so important. The point is not to overvalue the non-essential aspects of service at the expense of the really important ones.

The ABC accounting system has the following advantages:

provides a more accurate calculation of the unit cost of production in the case of a significant share of indirect costs that are not directly related to the objects of calculation;

substantiates managerial decisions on pricing, the choice of a production program;

provides the calculation of the cost of business processes, especially when performing services as new costing objects.

So, with the ABC method, in contrast to the traditional method, the cost accounting object is the operation, and the calculation object is the operation and the usual object: a product or a group of products, a service or a group of services, work performed (Fig. 8.1).

Let's consider a schematic diagram of the distribution of indirect costs, i.e. the cost of maintaining a safety engineer for the operations performed and the allocation of costs to certain types of products (Fig. 8.2).

Using the ABC method, not all costs are distributed, but only those for which it is possible and economically feasible to isolate cost groups by operations and find adequate drivers of costs and operations. The remaining indirect costs are allocated using the traditional method.

The allocation of overhead costs can be complex and even controversial, but overhead costs are an important cost element for many organizations, and their treatment has a significant impact on unit cost results, inventory costs, profit estimates, and possibly sales prices.

In the practice of management accounting, two approaches to the distribution of overhead costs are possible: "traditional" and by type of activity (ABC method). The procedures used by each of these approaches are shown in Fig. 8.3.

Traditional method ABC method

Rice. 8.3. Traditional and ABC method of allocation of overhead costs 232

Allocation (and redistribution) bases should be determined, if possible, in terms of the overhead cost carrier, i.e. underlying cause of their occurrence.

An ideal basis for the implementation of the AB-costing system is scientific and educational activities. Based on this method, it is possible with a high degree of reliability to assess the quality of education, the level of programs and instrumental systems used, and the timeliness of the technologies used in the field of educational services.