Gary Cokins


Why Use ABC?

Why Use Activity Based Costing

Why Use Activity-Based Costing (ABC)?

Gary Cokins, CPIM

Analytics-Based Performance Management LLC

Cary, North Carolina USA www.garycokins.com

919 720 2718

gcokins@garycokins.com

Copyright 2019 www.garycokins.com Analytics-Based Performance Management LLC 1

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Why Use Activity Based Costing

About Gary Cokins

Founder, Analytics-Based Performance Management LLC

B.S. Industrial Engineering & Operations Research; Cornell University, 1971

M.B.A. Finance & Accounting; Northwestern University, Kellogg School of Management, 1974

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Why Use Activity Based Costing

Traditional Overhead Cost Allocations are Flawed and Misleading

When CFOs “allocate” indirect expenses (i.e., overhead) to products and standard service-lines, they spread it like “butter across bread”.

CFOs violate cost accounting’s universal “causality principle.

Activity-based costing (ABC) resolves this by “tracing and assigning” expenses based on cause-and-effect relationships for how products consume work activities, which in turn consume the expenses.

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Why Use Activity Based Costing

The ABC Framework- The CAM-I Cross

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Why Use Activity Based Costing

ABC Cost Assignment Network

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Why Use Activity Based Costing

Standard Costing Over- and Under-Costs Products

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Why Use Activity Based Costing

Organizational shock from the truth

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Why Use Activity Based Costing

More important than a better costing methods are its results.

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Why Use Activity Based Costing

    
    Take Actions to Raise the  “Whale Curve”

Source: Alireza Sarraf; permission to use granted

ABC Quotes

“It is better to be approximately correct than precisely inaccurate !”

“In the land of the blind, the one-eyed man is King.”

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Why Use Activity Based Costing

     Value of Company = f(Value from Customers)

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Why Use Activity Based Costing

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Why Use Activity Based Costing

      A “Whale Curve” of Customer Profitability

In this graph 17% of a supplier’s customers generate 93% of their profitability.

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Why Use Activity Based Costing

     Customer Sales Volume Versus Profits

Customers tend to cluster. Medium-volume customers can be much more profitable than large-volume customers!

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Why Use Activity Based Costing

                ABC Provides the Data for ABM

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Why Use Activity Based Costing

Typical Excuses Preventing Being Progressive

We are profitable, so why does it matter?

We will purchase software that will fix our problems.

We already know our “true” costs from our general ledger financial reporting system.

We have done it this way forever. And we don’t do that here.

We already know everything. It is in our heads.

We are a small organization. We’ll worry about better methods when we get larger.

All this hype is just made up stuff from highly paid consultants.

 No one looks at the reports I create, so there is no point generating better reports.

We cannot afford better software to fix our problems.

We are way too busy doing other things. We don’t know where to start or how to get started.

Source: William Vaughn Company CPAs; IMA conference, June 20, 2019

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Why Use Activity Based Costing

           Most CFOs take the left-side path!

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Copyright 2019 www.garycokins.com Analytics-Based Performance Management LLC

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Why Use Activity Based Costing

How I became an expert with ABC

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Why Use Activity Based Costing

      Gary Cokins’ Best-Selling ABC Book

Activity-Based Cost Management gcokins@garycokins.com

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Why Use Activity Based Costing

Balancing Levels of Accuracy with Effort

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Why Use Activity Based Costing

Balancing Levels of Accuracy with Effort

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Why Use Activity Based Costing

          “Are Accountants Homo Accounticus?”

Thank You

Gary Cokins, CPIM

Analytics-Based Performance Management LLC

Cary, North Carolina USA

www.garycokins.com 919 720 2718

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