Activity-Based Costing
EngiLifeSciences 3PO Model | Performance Management Strategy
How Do You Identify the Core Manufacturing Cost Drivers?
EngiLifeSciences develops activity-based costing models in which costs are identified and assigned to overhead activities and attributed to the appropriate, related end products. Our activity-based costing models are comprised of cost center allocations and product cost allocations.
We utilize four essential elements to construct our activity-based costing models:
- Objects: These are usually the end products, or the targets of the primary cost calculation. However, other objects such as customers, markets, and product groups also serve as targets.
- Resources: Resources perform the work and accrue costs.
- Activities: Activities are the type of work that resources perform. They include purchase of raw material, bookkeeping, IT system design, etc.
- Cost Drivers: The methods for characterizing activities and linking them with the objects being costed. Cost drivers that are to be used in detailed cost calculations must also be linked to the costing objective.
Cost Drivers are categorized as the following:
- Volume Costs: These typically include human labor hours and machine hours.
- Introduction Costs: Costs driven by product development, product introduction, or changes to the product or service structure.
- Structural Costs: Include the number of parts, customers, purchase orders, and number of processes and operations.
Features and Benefits
EngiLifeSciences’s activity-based costing service determines the true cost of operational delivery for specific products. This information assists in developing annual budgets and pricing strategies. This can be set up to link into a formal capacity planning model.
