What is the cost of activity?

Activity -based costs is an accounting theory that involves assigning all business costs to each individual product or service. This type of cost is most commonly observed in the manufacturing sector, where a wide range of products are created at the same time. The purpose of this type of cost is to have the method for evaluating the total cost of creating and selling a particular product. The cost of work is divided into two areas: indirect and direct costs.

Indirect costs are usually considered to be overhead costs. The costs must be incurred for the operation of the company, but do not contribute directly to the final product sold by the company. Examples of indirect costs are administrative employees, accounting software, public services and rent.

Direct costs can be traced directly to create a product. The amount of direct costs assigned to a particular product is based on the actual use of this commodity. For example, in a commercial bakery, the director's cost of a number of carrot muffins includes the NáklaDy for flour, sugar and carrots. The amount of flour and sugar that are really needed to produce muffins are used to determine the cost allocation.

In activity -based costs, the calculation of direct costs and allocation for each different product line is relatively simple. For each order that is placed for delivery, the amount needed for each product line is recorded. The costs are then divided on the basis of the actual delivery request and charged to different cargo centers in the accounting system.

The same process is monitored for sale. All sales are recorded for each product line and income from the sale is assigned to the cost center as a yield. This allows the product manager to start simple messages and find out whether the product is profitable or not.

The complexity of this accounting model continuous cost. Part of the overhead cost that every product should becharged, can be defined on the basis of a wide range of options. Some companies use percentages, others look at profitability, product life cycle or other methods. Since the costs are indirect, there is no easy way to determine exactly what the share of these resources is used to support one particular product or product line. This is the purpose of activity -based costs.

Initially known as cost accounting, accountants would use general percentages to allocate overhead costs. Under activity -based costs, different measures are used to divide a large unit or resources into smaller units that can be assigned to specific tasks or products. For example, the cost of employees for maintenance mechanics can be difficult to allocate because their time is shared.

The

cargo -based load is recorded by the initial and terminal time mechanic every time they work on the machine. The real time spends work on a THT ENGINE ENGINE RATE for a mechanicand allows accounting to determine the cost of maintenance of the machine for the unit. It is important to note that the hourly rate must include the cost of employers and also paid holidays.