ACC 220 Lecture Notes - Lecture 10: Market Power, Indirect Costs
09/27/2018 Lecture #10
Chapter Five//ABC Costing Cnt’d
• Applications Beyond Product Costing
o ABC originally was created to solve cost distortion in product costs
o Upstream -> Suppliers’ costs
▪ Improves supplier management
▪ Reveals indirect dollar and non-dollar costs of suppliers
o Downstream -> Customers’ costs
▪ Enhances customer value
▪ Improves company pricing power Value based pricing
• ABC in Customer Costing
o Adds value by helping to:
▪ Set prices
▪ Align/determine customer mix
▪ Incrementally improve mix and price
o Better than job-based methods because customers themselves are diverse
and multiple drivers help trace costs accurately.
• ABC in Supplier Costing
o Direct and indirect costs of using suppliers
o Direct costs -> Money & Benefits
o Indirect costs
▪ Delivery timetables
▪ Risk of non-compliance
▪ Intellectual property theft
▪ Incursion of catastrophic risk
▪ Correlation of supplier and purchaser risk
• Takeaways
o ABC costing is the fastest growing cost calculation method.
o ABC systems require constant maintenance and updating.
▪ Out-of-date ABC systems
o ABC systems achieve more accurate cost allocations
Document Summary
Chapter five//abc costing cnt"d: abc originally was created to solve cost distortion in product costs. Improves supplier management: reveals indirect dollar and non-dollar costs of suppliers, applications beyond product costing, upstream -> suppliers" costs, downstream -> customers" costs, enhances customer value. Improves company pricing power value based pricing: abc in customer costing, adds value by helping to, set prices, align/determine customer mix. Incrementally improve mix and price: better than job-based methods because customers themselves are diverse and multiple drivers help trace costs accurately, abc in supplier costing, direct and indirect costs of using suppliers, direct costs -> money & benefits. Indirect costs: delivery timetables, risk of non-compliance, correlation of supplier and purchaser risk.
