Activity Based Costing Capabilities/Case Study
Activity Based Costing (ABC) to Improve Accuracy of Product Costing for Financial Services Firm
The Challenge:
This financial services firm had a wide variety of products. These products could have been originated by them or purchased from other financial institutions. These products had different statuses (e.g., current, delinquent, default, resale). As the industry was becoming more competitive, some national players were focusing on these products, and the government was negatively impacting rates, this financial institution needed to better understand their costs by product, status, and source to assist them with:
a) Determining strategy
b) Making purchasing decisions
c) Managing performance
The Approach:
We met with senior management to determine specifically the type of improved costing information that was needed. Employees from cost centers in two locations attended one or two workshops. In these workshops, the employees were given a brief explanation of why the company needed more accurate costing information and what was expected from them. The employees were asked to define their activities. They were asked to either do time studies or estimate what percentage of their time was spent for each activity. Then they were asked to determine how to assign these activities to the various cost objects (i.e. products, source, and status).
This information was loaded into ABC Technologies OROS activity costing package where we were able to extend the capabilities of the software to meet the clients needs by working closely with ABC Technologies.
Activity Based Costing (ABC) to Improve Accuracy of Product Costing for Financial Services Firm
The Challenge:
This financial services firm had a wide variety of products. These products could have been originated by them or purchased from other financial institutions. These products had different statuses (e.g., current, delinquent, default, resale). As the industry was becoming more competitive, some national players were focusing on these products, and the government was negatively impacting rates, this financial institution needed to better understand their costs by product, status, and source to assist them with:
a) Determining strategy
b) Making purchasing decisions
c) Managing performance
The Approach:
We met with senior management to determine specifically the type of improved costing information that was needed. Employees from cost centers in two locations attended one or two workshops. In these workshops, the employees were given a brief explanation of why the company needed more accurate costing information and what was expected from them. The employees were asked to define their activities. They were asked to either do time studies or estimate what percentage of their time was spent for each activity. Then they were asked to determine how to assign these activities to the various cost objects (i.e. products, source, and status).
This information was loaded into ABC Technologies OROS activity costing package where we were able to extend the capabilities of the software to meet the clients needs by working closely with ABC Technologies.
1 comment:
Hi
Yes ABC can be used to find out the accurate cost of products. Not only this but it can also find out the cost of servicing the various customer types or cusotmers.
This helps in understanding the true profitability of the products and customers. One can find which are profitable products and which are not. Who are the profitable customers and sho are not.
This information can be used to cater various customer segments by the profitability. find out the cahrachteristics and behavoiur of these various customer segments to cater them their needs. The best scenario is to provide best products or services to your best customers.
If you need more information pl mail me on rajenpatil12@gmail.com
Regards
Rajen
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