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Co-Op Bank and Abc

In: Business and Management

Submitted By mrbig123
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DEFINITION

(ABC) Activity-Based Costing is the costing approach that identifies and classifies a business’s activities and then allocates a cost to each activity. ABC subsequently assigns these costs to all the services or products associated with the actual consumption. By applying ABC, a business can accurately estimate the cost of an individual product or service.

Organisations can then recognize and remove those products or services that are unprofitable or adjust pricing to match strategic decisions. This tool is generally used for evaluating product/service and customer cost and profitability. Thus ABC can be used to support strategic decisions such as pricing, outsourcing, identification and measurement of process enhancement initiatives.

EXTRA QUESTION: What differences do you see between applying ABC in a service company (as the Co-Operative Bank) and in a manufacturing company?

MANUFACTURED PRODUCT OR SERVICE PERSPECTIVE

The immense difference between applying ABC to a service company as apposed to a manufacturing company is that with a manufacturing company, the product costs are easily identifiable and quantifiable because they consist of direct materials and direct labour associated with the products. Manufacturing overheads or indirect production costs can be allocated towards the product using absorption costing relatively easily unless management want to perform a more accurate intensive ABC model that will be more tedious and thus extremely time consuming.

However with a service company, the direct costs associated with a job or service product is not as easily identifiable. Regularly the direct input is employees time in hours invested into a specific job or service product and thus procedures would have to be set into place to capture this input accurately. In the service industry, it is common that employees may be exposed to

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