Advantages of ABC Activity Based Costing
Keeping your project’s budget under control can at times be a difficult job to get done. Sometimes you might estimate then make a prediction that your project is totally on budget. Next when you see your actual outcome it was either over or under budget.
This can affect your business in so many ways. To reduce the risk of this happening in your company doing activity based costing can help you out a lot. What is activity based costing? Activity based costing is basically analyzing the different activities in a project down to its finest of details to help you find the true cost of each activity.
This will have a great impact on how you make financial decisions in your company. Furthermore it can help you with your overall budgeting strategy.
For example suppose that you have a certain amount of money to invest in a project. Performing activity based costing before the project even started will help you as a manager to better distribute your cash and probably even save a portion of it back as well.
You have a lot of other advantages of why activity based costing can be an important tool in your organization. Below you can see a list of them in more detail.
Removing unprofitable items
By looking at the different operations and resources it takes to create and deliver a product. It can help you to strip away unprofitable products or products with low margins. This advantage is really huge because you have companies who sell a variety of products who are bleeding money when each one is sold.
It will assist in showing you if your product is really worth it to sell. Next when you look at the costs involve creating it and sell it and your margins aren’t sustainable. You can remove it from the market to help save costs.
When you take advantage of activity based costing it will help in making your operations perform cheaper and more efficiently. By taking an in depth look at your different operations in a certain project.
It will help you to find unusual bottlenecks in your operations that when solved will increase productivity and run at a less costly rate.
Eliminate wasteful resources
Performing activity based costing will help your organization to better eliminate waste. This type of waste can be excess in resources such as materials, products, etc. By using this technique it will help you to allocate the right amount of resources that’s needed for a certain activity.
Improve your financial decisions
Practicing activity based costing will have a real impact on your financial decisions. It will help you make better financial decisions and help your organization perform better with less.
In summary as you can see activity based costing comes with a lot of benefits that you can take advantage of right now in your organization. Although this tool might be pretty useful, it will not eliminate 100% off the risk that a project usually comes with. But by looking at the bright side of things it will have a huge impact on your business financially.
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