The difference between activity-based costing and traditional costing

The difference between activity-based costing and traditional costing

1, the difference of indirect cost.

Under the traditional cost method, indirect expenses refer to manufacturing expenses, and in terms of economic content, only the expenses directly and indirectly related to product production are included, while the expenses of managing and organizing the whole factory to produce and sell products and raising production funds are regarded as period expenses.

Under the activity-based costing method, the product cost is full cost, and all expenses are beneficial to the final enterprise value as long as they are reasonable and effective, and should be included in the production cost. It emphasizes the rationality and effectiveness of expenditure, regardless of whether it is directly or indirectly related to production. In this case, the period expenses are unreasonable and invalid expenses.

2. Differences in information accuracy

The main purpose of traditional cost method is to distribute the manufacturing expenses charged by auxiliary departments to all products in an average linear way, without considering the proportion of product consumption and expenses in actual production, which can only be an "absolutely inaccurate" information. The product cost information calculated by activity-based costing can be regarded as more accurate information.

Activity-based costing focuses on the sources of expenses and costs when allocating indirect expenses, and links the allocation of indirect expenses with the causes of these expenses. When allocating indirect expenses, choosing diversified allocation standards (cost drivers) greatly improves the attribution of costs and minimizes the proportion of indirect expenses allocated according to artificial standards, thus improving the accuracy of cost information.

If the cost of the product is regarded as the bull's-eye, ABC can consistently hit the outer ring and central ring of the target, although it can't hit the bull's-eye every time.

3, the difference between production management and quality management.

The management production system under the traditional cost method is a production system pushed from front to back. That is, starting from raw materials, it enters the first production process, and the semi-finished products after the first process are transferred to the second production process, and so on, step by step, until the final product is formed. Therefore, the traditional cost and quality management generally focuses on the quality inspection of semi-finished products and finished products, and if there are problems, they will be repaired or eliminated in time.

The production management system under activity-based costing is generally a just-in-time system, which is different from traditional production and is a backward production system. The production processes of enterprises are closely linked, which improves work efficiency and income, and also reduces the expenses brought by inventory.

The quality management under activity-based costing is a comprehensive quality management from cradle to grave, which requires workers in all production links to control their own production, realize self-quality supervision, and immediately correct the waste and defective products in this production process.

4. Difference of distribution datum features

The traditional cost method mainly uses a single financial variable such as working hours as the allocation benchmark, while ignoring a group of good non-financial variables, thus losing some favorable opportunities to improve company management. The distribution basis of activity-based costing is diversified, which not only emphasizes financial variables such as labor hours, machinery hours, production batch, number of product parts, but also emphasizes non-financial variables such as process change instructions, adjustment preparation time and transportation distance.

The adoption of multi-distribution benchmark improves the correlation between products and their actual consumption expenses, makes management go deep into the activity level, eliminates "non-value-added activities", improves "value-added activities" and increases "customer value".

5, the difference between the applicable conditions

Traditional cost method is suitable for labor-intensive enterprises with single product structure and relatively low manufacturing costs, and its occurrence is actually related to direct labor costs.

Activity-based costing is generally applicable to technology and capital-intensive enterprises with large indirect costs, various products, complex production processes and complex production and operation activities. These enterprises have well implemented the just-in-time system and total quality management system, but the management authorities are not satisfied with the accuracy of the information provided by the traditional cost system.

Extended data

The implementation of activity-based costing generally includes the following steps:

(1) Set the objectives and scope of ABC implementation and form an implementation team;

The implementation of activity-based costing must have a clear goal, that is, how decision makers use the information provided by activity-based costing. The scope of implementation is the implementation department of activity-based cost, which can be implemented in the whole enterprise or in the independent accounting department, and the implementation subject of activity-based cost must be clear.

In order to implement activity-based costing, it is necessary to set up an activity-based costing implementation team, which is led by the leaders of the enterprise, including the accounting person in charge and related personnel of the enterprise. When activity-based costing is implemented abroad, it is generally composed of internal personnel and external professional consultants. External professional consultants have experience in implementing activity-based costing, so the implementation work can learn from the success and failure of other implementation work.

(2) Understand the operation process of the enterprise and collect relevant information;

The purpose of this step is to know the business process of the enterprise in detail, to make clear the cost circulation process of the enterprise, the factors leading to the cost, and the responsibilities of various departments for the cost, so as to facilitate the design of the management and responsibility control system.

(3) Establishing activity-based cost model;

On the basis of fully understanding and analyzing enterprise management, the activity-based costing model of enterprise is designed, which mainly determines the following contents: the determination of enterprise resources, activities and cost objects, including their classification, the relationship with various organizational levels, the responsible subject of each calculation object, the cost driver of resource activity allocation, and the establishment of the relationship between resources and activities, activities and products allocation.

(4) Select/develop the activity-based costing implementation tool system;

Activity-based costing can provide more information than traditional costing, and it is based on a large number of calculations. The implementation of activity-based costing can not be separated from the support of software tools, which help to complete complex accounting tasks and analyze information. Activity-based costing software system provides a tool for constructing activity-based costing system, which can help to establish and manage activity-based costing system and complete activity-based costing.

(5) Activity-based costing;

On the basis of establishing activity-based costing system, input specific data and run activity-based costing.

(6) Analyze and explain the operation results of activity-based costing;

Analyze and explain the calculation results of activity-based cost, such as the reasons for high cost and the changes in cost composition;

(7) Take action.

Take action against the problems reflected in cost accounting. For example, improve work efficiency, assess organizations and employees, change the execution mode of work, and eliminate worthless jobs.

An enterprise is an ever-changing entity. After the normal operation of activity-based costing, it is necessary to maintain the activity-based costing model so that it can reflect the development and changes of enterprises. With the operation of enterprises, the operation, interpretation and function of activity-based costing is a cyclical process.