Improve your competitiveness through effective process cost control
Activity-based costing (ABC) is an advanced and increasingly indispensable method of controlling and cost management in companies. It enables a precise and cause-orientated determination of the costs incurred in executing various business processes. The main objective of activity-based costing is to directly allocate all expenses incurred during a process cycle to the respective processes, thereby significantly improving cost transparency and efficiency in process-oriented corporate management .
Core components of activity-based costing
Activity-based costing is made up of several core components that make it possible to carry out a detailed and structured cost analysis:
- Cost type accounting: here, all costs incurred are systematically recorded and categorized according to types such as personnel costs, material costs, depreciation, etc. This categorization helps to make the different cost sources transparent.
- Cost center accounting: This component allocates costs to the places where they are incurred. Each process or department that generates costs is managed as a separate cost center. This makes it easier to track and analyze cost flows within the company.
- Cost unit accounting (costing): In this phase of activity-based costing, the costs incurred in the production of goods or provision of services are allocated to the respective products or services. Cost unit accounting allows for precise determination of the cost price of the products or services.
Advantages of activity-based costing
Implementing activity-based costing in your organization can have several key benefits:
- Increased cost transparency: by accurately allocating costs to the processes that cause them, a high level of transparency is achieved, enabling managers to make informed decisions.
- Increased efficiency: By uncovering cost inefficiencies, processes can be optimized and unnecessary expenditure can be reduced.
- Improved pricing: Detailed knowledge of process costs helps to set realistic and competitive prices for products and services.
- Strategic planning: ABC data supports strategic planning by providing important insights into the company’s cost structures.
Use of activity-based costing
The application of activity-based costing covers various industries, including manufacturing, healthcare, financial services, and IT. This method is particularly valuable for organizations that have a high degree of process variety and complexity and where the direct allocation of costs and activities is critical to business success.
Activity-based costing is more than just a cost accounting tool; it is an integral part of modern business management, providing a deeper insight into cost structures and their optimization potential. By applying this method, companies can not only improve their cost structure but also strengthen their competitiveness and market position.
