Overhead Costs ; Product Costing Activity-based costing ABC is an accounting method that allows businesses to gather data about their operating costs. Costs are assigned to specific activities—planning, engineering, or manufacturing—and then the activities are associated with different products or services.
The founder of McDonalds is Ray Kroc. They have entered into this career in California first with a small restaurant in The motto of McDonalds is to serve the people with the best food qualities their favorite and delicious food. Their value in action is none of us is as good as all of us.
During the s the limitations of traditional product costing systems began to be widely publicized.
Goetz advocated ABC principles first. ABC costing can be implemented in McDonalds in the following way: First, they need to identify the chosen Cost Objects product, service or customer. For example they have selected their product to implement ABC costing on it. Their product is burger.
Secondly, they need to identify the Direct Costs. Some examples of this are prime cost of the products for service or he customer.
In this case potato will be considered as its direct cost. The next step is to select the Activity Bases or Cost Driver. In this case it will be the number of order placed of all types of potato products in a day.
Then you must identify the costs associated with each activity in the Cost pool. In this case it is the amount of days. You must then compute the rate per cost driver. Then you must compute the indirect costs of the products. The formula for this is the activity for the product multiplied by rate per driver.
The benefits that the company will get from this ABC based costing are as follows: Activity-based Costing in Service Industries 3 1. Attention of the employer: In this type of costing technique the focus of the employers is on the activities of the product instead of the products.
Therefore, the employers will get the costs of different activities of the organization because the product wise costs will not reflect the segregation the cost of different activities which are involved in the process of the production of the products Ligy V.
Thus the managers will not be able to know that which activity is more important in the process of production of the product.
But with the help of this technique they can be able to know their activities cost. ABC costing will help to find the overall costs of each and every activity of different departments.
This will help to find out the individual cost of activity. This will also increase the quality control, handling of materials, etc. It calculates the costs of the product with the help of the percentage of the utilization of the activity in the production process and also with the help of the cost drivers.
ABC based costing manage the activities of the product in a detailed manner. Because it believes that the main reason for the change in costs is the change in activities.
This will improve the quality of the product as well as the product will become more competitive. Identification of the problems: For example, if the cost of the product is increased due to the cost of the Activity-based Costing in Service Industries 4 advertising then this technique will help to find out the areas of administration and reflect that if we reduce the advertisement cost of the product then the costs of the product will get reduce and the same cost can be utilized for improving the quality of the product as the main motto of McDonalds is to serve the people with the best qualities of food.
This will help to compute the different ratios of the product which help to find out the trend analysis of the product. This will help to increase the overall productivity of the organization. The profitability and the turnover ratio will also be computed very easily with the help of this technique.
This technique will help to make wiser decision regarding economic, environmental and social matters. ABC based costing will reflect the activities wise costing. The intense global competition requires for correct costing of products to avoid in accurate cost and for correct decision making.
The traditional costing uses the single basis technique to find out the cost of the product. For example, direct material cost.Activity-based costing is a more specific way of allocating overhead costs based on “activities” that actually contribute to overhead costs.
An activity is an event, task, or unit of work with a specific purpose, whether it be designing products, setting up machines, operating machines, or distributing products. What are 3 activities for activity based costing and the correct cost drivers for them? Provide an estimate for the application rates of these drivers.
Include the nature/name of McDonald's, which activity, time period, and inputs were used, and your results and implications from them. He covers topics such as performing variance analysis, doing activity-based costing (ABC), and using ratio analysis.
McDonalds and the Use of Activity Based Costing The writer looks at the way activity based costing may be used in a fast food restaurant such as McDonalds using the preparation and sale of chicken nuggets to illustrate the process and identify the cost drivers.
Activity-Based Costing Activity-Based Costing Activity based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and . In the classroom, activity-based costing looks like a great way to manage a company’s limited resources. But many managers who have tried to implement ABC in their organizations on any.