ABCs Impact on Product Costs

A more relevant and revealing result can be seen when the cost of direct materials, purchased components, and outside processing are subtracted from the totals. These are the nonactivity costs, or direct costs, which are the same costs calculated under either method. Table 32.2 summarizes the differences in only those costs addressed by activity-based costing. 

These tables show that product costs determined using over-generalized, traditional costing methods vary considerably from the ABC costs, which take into account the cost behavior that actually takes place within the business. 

Knowledge of product cost is critical for any organization that hopes to maintain, or improve, its competitive position. This is especially true at small and mid-sized organizations that face ever-increasing pressure from their customers to continually reduce the price of their produets and services. 

The focus of this project was, by design, on product costing. However, the activity-based cost information generated at eaeh site provided managers with (1) valuable process cost information, which they used to support their agile and lean manufacturing efforts and (2) an aetivity-based model that made the accurate calculation of situation specific incremental costs possible to support a myriad of other management decisions. 

This chapter provides additional detail regarding the operation of the 3C methodology. The features of 3C are Consumption, Capacity, and Commonality the origin of the name is explained as follows. 

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