Talking about the application of activity-based costing in the management of construction enterprises?

1 the meaning of activity-based costing

Activity-Based Costing (ABC), also known as activity-based costing or workload benchmark costing, is a cost calculation method that takes activity as the core, confirms and measures all activities that consume enterprise resources, accurately counts the consumed resource costs into activities, and then selects cost drivers to allocate all activity costs to cost calculation objects (products or services). It is a brand-new enterprise management theory and method which was studied by western countries in the late 1980s and first applied to advanced manufacturing enterprises in the 1990s.

Activity-based costing aims to make up for the shortcomings of traditional cost accounting, strive to provide timely, accurate and relevant cost information, minimize losses and waste, improve the scientificity of decision-making, planning and control, and promote the continuous improvement of enterprise management level. Its guiding ideology is: cost objects consume activities and activities consume resources. In this cost system, the flow process of cost is that resource cost is transformed into activity cost, and activity cost is transformed into product cost, as shown in figure 1.

2 Activity-based costing and traditional costing comparison

The difference between activity-based costing and traditional costing is that it adopts a variety of manufacturing cost allocation standards: under the traditional cost system, when manual hours or machine tables are used, the indirect costs are first allocated to various production departments, and then the cost allocation rate is determined according to the production departments, and the expenses are allocated to the product costs. Under the activity-based costing system, manufacturing expenses or indirect expenses are first attributed to each activity or activity-based costing library, and then the allocation rate is determined by each activity or activity-based costing library, and the expenses are allocated to the cost of products. The so-called cost library refers to the unit that can collect and distribute manufacturing expenses with the same cost driver.

In the traditional cost calculation method, the allocation method of indirect expenses is suitable for the situation that indirect expenses are less, the proportion of indirect expenses in the total cost is small, and the requirements for cost management are not high. In the era of high automation and JIT (just-in-time production system), the proportion of labor cost in cost is getting smaller and smaller, the proportion of indirect cost is greatly increased, and the composition of manufacturing cost is becoming more and more complicated. In this case, if we still allocate these increasing indirect costs on the basis of reducing labor hours, it will inevitably lead to serious distortion of cost information, which will lead to cost control failure and business decision-making mistakes. Activity-based costing can overcome the cost distortion of traditional costing and provide more accurate cost information, which is of great significance for correctly analyzing activity-based costing, accounting product cost and evaluating capital expenditure.

Activity-based costing has many advantages, the most important of which is that it can urge managers to try their best to control costs. Once the cause of indirect cost of a product is confirmed, managers will re-evaluate all kinds of indirect costs from the perspective of reducing costs, eliminate non-value-added activities and improve value-added activities to reduce indirect costs. Therefore, activity-based costing not only ensures the accuracy of cost calculation, but also enables enterprises to effectively control indirect costs and continuously reduce product costs.

3 Application conditions of activity-based costing

In essence, ABC method is not only a cost calculation method, but also a cost management method. There are two levels of ABC.

(1) As a cost calculation method, activity-based costing calculates the cost of products at three levels of resources, activities and products, in order to get more accurate and true cost information. Therefore, if construction enterprises want to adopt this cost calculation method, they need to meet the following basic conditions: First, they have large scale and many kinds of products. Second, the enterprise management level is high. Third, the production and operation of enterprises have a high degree of automation, and indirect expenses account for a large proportion of total costs. The fourth is to have advanced computer technology. Fifth, the financial personnel are of high quality and have a brand-new concept of cost management.

(2) As an activity-based analysis method, activity-based costing is not limited to the above conditions. The above conditions are calculated for activity-based cost, not for cost management, that is, activity analysis. Therefore, any enterprise that needs to improve basic management and carry out activity-based management at the activity level, so as to effectively reduce product costs and improve enterprise management level and market competitiveness, is applicable to activity-based cost management. Activity-Based Costing (ABC) adapts to the modern manufacturing environment and shows a good development momentum in western developed countries. In China, especially in construction enterprises, the cost management methods of construction enterprises are still very backward because of the influence of long-term planned economy on Chinese enterprises. At present, China construction enterprises have not set foot in ABC, but since 1980s, the development and application of electronic computing technology and the development of information processing technology have laid a solid technical foundation for the implementation of ABC with diversified manufacturing cost allocation standards. With the development of market economy, the innovation of management thought, organization and mode of construction enterprises in China in recent years, the progress of construction technology and the improvement of informatization level, and the more intense competitive environment after China's entry into WTO, have prompted China construction enterprises to adopt brand-new management decision-making concepts. At present, the external transaction costs of China's construction enterprises are increasing, and the proportion of indirect expenses in the cost of construction products is greatly increasing, especially the impact on the overall resource allocation cost of enterprises, which makes the traditional cost calculation system no longer adapt to the current cost management of construction enterprises. With the improvement of scale, manufacturing and mechanization of construction enterprises, with the emergence of new theories, new materials, new concepts and new business models, the products of construction enterprises are no longer limited to ordinary engineering products, but will enrich the business scope and service types of construction enterprises, which creates the necessary conditions for construction enterprises to implement ABC system. The investment scale of construction enterprises is huge, which subjectively forces enterprises to find new cost management methods to improve management level, so as to achieve the purpose of controlling and saving costs. Therefore, the introduction and implementation of the basic theory of activity-based costing is helpful for construction enterprises to accurately calculate the project construction cost, optimize the construction business process, reduce the non-value-added activities in the construction production process, and reduce the waste of resources, thus reducing the construction cost, enhancing the competitiveness of enterprises and realizing the business development strategy of enterprises.

4 Basic characteristics and calculation steps of activity-based costing

4. 1 basic functions

The core of activity-based costing is to accurately count the consumed resource cost into the activity when calculating the product cost, and then select the cost driver to allocate all the activity costs to the product cost. Several basic characteristics of activity-based costing;

(1) homework. From the perspective of activity management, activities with no added value should be eliminated as far as possible, so the activities referred to in activity-based costing refer to economic activities with added value and costs.

(2) resources. Activity-based costing (ABC) is a method suitable for rational allocation of indirect costs, so the resource pool here is a collection of resources consumed by indirect costs.

(3) Cost accounting of activities. In the activity-based costing system, the occurrence of costs is recorded according to their nature, and then the related costs are classified according to each activity, that is, the confirmed activity is regarded as a cost center, rather than a production department as a cost center.

(4) Cost drivers. Cost driver refers to the correlation between activity-based costs and products, and the allocation of activity-based costs must meet the requirements of correlation.

(5) Increase the direct cost. Under the traditional cost system, only direct materials and direct labor are direct costs, and the rest are indirect costs. Under the activity-based costing system, all kinds of costs are attributed to direct costs as much as possible.

4.2 Calculation steps

The basic principle of activity-based costing: production leads to activities, activities lead to costs, and costs and expenses are linked through activities. Therefore, the cost calculation procedure of activity-based costing is to allocate the cost of each resource pool to each activity, and then allocate the cost of each activity cost pool to the final product. This process can be divided into the following five steps:

(1) Confirm and measure the resources consumed by the enterprise.

(2) Analyze and confirm the operations that consume resources, classify and summarize these operations, and establish a job library.

(3) Determine the resource drivers, and use the resource drivers to allocate the collected resource costs to various operations.

(4) Determine the activity motivation, and use the activity motivation to allocate the cost of each activity center to the final product.

(5) Calculate the product cost. Combine and summarize the activity cost (library) and direct cost (direct labor and direct materials) allocated to a product to calculate the total cost of the product, and then compare the total cost with the product quantity to calculate the unit cost of the product.

5 the implementation of activity-based costing should pay attention to the problem

Activity-based costing is a cost calculation method more suitable for modern high-tech production environment, which corrects the phenomenon that traditional absorption costing distorts product cost. The calculated product cost accurately reflects the relationship between the product and the resources it consumes, which is close to the actual cost. In the highly automated production environment and increasingly fierce market competition, it can provide reliable cost information for enterprise planning, control and decision-making, and it is also superior to the variable cost method advocated by management accounting earlier. Construction enterprises should pay attention to the following problems when implementing activity-based costing:

(1) Activity-based costing is the core part of activity-based costing management. Its purpose is not only to calculate the product cost, but also to measure the resource cost consumed by various activities, which is essentially to measure and analyze the flow of resources.

(2) The implementation of activity-based costing should follow the principle of cost-effectiveness. No cost system is as accurate as possible. The key is to consider its cost.

(3) Activity-based costing is subjective. For example, different accountants will have different results when confirming activities, selecting cost drivers and confirming homogeneous cost pools. This kind of subjective randomness sometimes leads to great deviation from reality.

(4) Activity-based costing is a new full-cost system, which broadens the scope of cost calculation. The product cost includes the period cost that can't be traced back before, and the calculated cost index value is quite different from that calculated by the traditional absorption cost method, so we should pay attention to the connection and integration with the current cost system when implementing it.

(5) The implementation of activity-based costing must obtain the approval and support of the top leaders of the unit and the leaders of relevant departments, do a good job in training all staff, improve their cost awareness, avoid and eliminate cross-operation, eliminate the resistance caused by various human factors in the implementation process, and promote cost reduction and efficiency improvement. This is the essence of activity-based costing.

(6) To implement activity-based costing, we should do basic work related to accounting to ensure that accounting information is true and reliable. Otherwise, making false accounts is tantamount to wasting people's money.

(7) Activity-based costing has been proved to be an advanced and effective cost accounting method after its application in western countries. However, the most advanced management methods are not necessarily the most suitable for every enterprise, and the application of any management theory and method will be restricted and influenced by various environmental factors inside and outside the enterprise. If we don't consider the blind use of its application environment, we will get twice the result with half the effort.

6 concluding remarks

Activity-based costing is an advanced cost calculation and cost control method, which combines many advanced management ideas. In China, the application research of activity-based costing has also made new progress in recent years, and the application industry has also extended from manufacturing to service industry, which has laid a certain foundation for us to apply activity-based costing in construction enterprises. Chinese construction enterprises should actively create conditions to carry out activity-based costing. Even at present, it is not necessary for very advanced construction enterprises to fully apply ABC, so they should absorb its related ideas and concepts to improve their production and operation environment and enhance their market competitiveness.

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