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Activity Based Costing Step by step [Video]

Activity Based Costing Step by step

In today’s episode we’re going to discuss activity-based costing, or ABC for short.

ABC is a cost system that can be used to:
• Measure the cost of providing a good or service
• Calculate the profitability of a company’s product lines
• Perform customer profitability analysis

So why is ABC better than traditional cost systems? With traditional cost systems, you lump all the overhead costs into a single bucket and then spread them across products using a single cost driver that may not be correlated with overhead.

But with ABC you:
• Identify the activities that logically cause overhead costs to be incurred
• Group overhead costs into cost pools based on the activity type
• Calculate activity rates for each of those cost pools
• Use activity rates to assign costs to the cost object (product, department, customer, etc.)

Thus, you’re identifying all the different activities that drive overhead costs and allocating costs accordingly. Costs are allocated based on cause-on-effect relationships, instead of a single, arbitrary measure.

Activity-based costing:
• First puts the overhead into cost pools
• Then allocates overhead to the product using activity rates

This is sometimes called a two-stage allocation.

But there’s another difference between ABC and traditional cost systems that pertains to manufacturers. Both U.S. GAAP and IFRS state that inventoriable costs (aka product costs) include 3 things:
• The cost of direct materials
• The cost of direct labor
• Manufacturing overhead

But because ABC is all about finding the most accurate, most relevant cost this definition of product costs is ignored.

When a company is calculating the cost per unit with ABC it might:
• Assign some nonmanufacturing costs to the product
• Exclude some manufacturing costs from the product

Thus, a manufacturer that wants to adopt activity-based costing would have to maintain two separate cost systems: one for external reporting (the financial statements) and one for internal decision-making (ABC).

Now there are many reasons a company might not use ABC:
• Manufacturers would find it costly to maintain two cost systems
• It’s time-consuming to interview employees to identify the various cost pools
• Employees overstate the amount of time they spend on activities so they don’t look lazy
• ABC results in a massive amount of data, which takes time to analyze
• Implementing ABC takes a lot of time, and employees might resist the new system

0:00 Introduction
0:30 How activity-based costing differs from traditional cost systems
2:19 The steps involved with activity-based costing
2:54 Example of traditional cost system
4:00 Example of activity-based costing
5:34 Traditional vs. activity-based costing for manufacturers
6:38 Example of activity-based costing (advanced)
7:42 Why some companies don’t use activity-based costing

Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people.

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Resources for Accountants

3 Theories Explaining the Shape of the Yield Curve [Video]

There are three theories to explain the shape of the yield curve. Expectation theory says the long-term yield of a financial instrument is the average of the short-term yields that are expected to occur over the life of the instrument. Thus: • An upward yield curve means investors expect short-term yields to rise in the future • A downward yield curve means investors expect short-term yields to decline in the futureThe yield curve, therefore, changes as investors’ expectations about future short-term yields change. This explains why yields with different maturities tend to move together. Market segmentation theory says that yields for different terms are based on supply and demand. In short, some investors have a preference for financial instruments with a certain maturity, and these preferences determine yields. The downside of market segmentation theory is that it fails to explain why yields with different maturities tend to move together.Liquidity premium theory is a combination of expectations theory and market segmentation theory. According to this theory, the long-term yield is the average of short-term yields throughout the life of the bond plus a liquidity premium that represents the supply and demand for bonds at that term.— Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people. — SUBSCRIBE FOR FREE PDF GUIDES TO THE FINANCIAL STATEMENTS, MANAGERIAL ACCOUNTING, TAX, AND MORE* http://eepurl.com/dIaa5z — HIRE MICHAEL MCLAUGHLIN, PHD, CPA* https://michaelmclaughlin.com/hire-me— GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT* https://edspira.thinkific.com—LISTEN TO THE SCHEME PODCAST * Apple Podcasts: https://podcasts.apple.com/us/podcast/scheme/id1522352725* Spotify: https://open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc* Website: https://www.edspira.com/podcast-2/—GET TAX TIPS ON TIKTOK* https://www.tiktok.com/@prof_mclaughlin—ACCESS INDEX OF VIDEOS* https://www.edspira.com/index—CONNECT WITH EDSPIRA * Facebook: https://www.facebook.com/Edspira* Instagram: https://www.instagram.com/edspiradotcom* LinkedIn: https://www.linkedin.com/company/edspira—CONNECT WITH MICHAEL * Twitter: https://www.twitter.com/Prof_McLaughlin* LinkedIn: https://www.linkedin.com/in/prof-michael-mclaughlin—ABOUT EDSPIRA AND ITS CREATOR* https://www.edspira.com/about/

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Resources for Accountants

Accounting Jobs At Amazon | Job Duties, Qualifications & Salaries [Video]

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All of the Balance Sheet Ratios for Financial Analysts [Video]

Over the last year I’ve made multiple videos talking about how to measure balance sheet KPIs or we also refer to them as financial ratios.And today I wanted to put these all together in one video, so you can come out of it feeling super confident in your ability not only to calculate these rations, but more importantly how to read and interpret them📈Get My “Controller KPI Dashboard” (Excel + Course) with the most important P&L and Balance Sheet KPIs:​https://thefincontroller.com/p/controller-kpi-dashboard-one-kpi-dashboard-to-run-a-business​📈 Get $25 off MY ONLINE COURSE ON FINANCIAL METRICS (code: Save25)https://thefincontroller.com/p/learn-financial-metrics-kpis/?product_id=2659754&coupon_code=SAVE25&preview=logged_out🔥Enroll in my online course “Night Before the Accounting Interview Guide” including All Levels Q&A🔥:https://thefincontroller.com/p/the-night-before-your-accounting-interview-course-for-all-levels------------------------------------------------------------------⚪️ 🧠 Roger CPA Review Course (get 50% off - Highly recommended): https://www.uworld.com/productreferral.aspx?ukey=8lzsxx2bT8qzYRxekeTKyWQ3d3d⚪️ 📚 Learning//SkillShare (get 2 weeks free): https://www.skillshare.com/r/profile/Bill-Hanna/7521537---------------------------------------------------------------------Hang Out with me on social media:📸 https://www.instagram.com/the_financial_controller/📱https://www.tiktok.com/@thefinancialcontroller🙋🏼‍♂️https://www.facebook.com/groups/780732429036886/?source_id=101273467885666DISCLAIMER: Links included in this description might be affiliate links. If you happen to purchase a product or service with the links that I provide I may receive a small commission. There is no additional charge to you! Thank you for supporting my channel so I can continue to provide you with free content each week!All views expressed on my channel are mine alone. Not intended as financial or professional advice

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Introduction to Venture Capital 💼🚀 | Wallstreetmojo Venture Capital Series [Video]

🤝 Welcome to Wallstreetmojo's new Venture Capital series! 🌟 In this introductory video, we embark on a journey to demystify the world of venture capital and its vital role in driving innovation and growth.Join us as we explore the basics of venture capital, including what it is, how it works, and why it's crucial for startups and investors alike. We'll provide a clear overview of the key concepts, terminology, and the venture capital ecosystem.Whether you're an aspiring entrepreneur, an investor, or simply curious about the venture capital landscape, this series is designed to equip you with the knowledge and insights needed to navigate this exciting field.Hit that subscribe button to stay updated on our latest videos, and let's kick off our venture capital journey together! 🚀