assume a company needs to switch to an ABC system.Activity-Based Costing System
Describe the common cost drivers that could be used.
•How would the organization identify the cost drivers?
•How would the organization use them in the implementation of this system? You may use your former or current company for the analysis.
Hi there! My background is in cost accounting for healthcare systems, so my below example illustrates how I have implemented cost drivers in many hospital settings. In a hospital setting, costs are typically split out first at a high level of Direct Expenses and Indirect Expenses. Direct Expenses are all expenses related to Revenue Producing departments such as Emergency Department, ICU, and Med/Surg Unit. Indirect Expenses (also known as Overhead Expenses) are all expenses related to non-revenue producing departments such as Housekeeping, Accounting, and Information Management. There are many types of cost drivers and cost pools that can be expounded upon, but for the purposes of answering your questions below, I am going to explore the Overhead Expenses of Housekeeping, Accounting, and Information Management.
Identification and Use of Cost Drivers
I picked the examples of Housekeeping, Accounting, and Information Management because their cost drivers are all different, but easy to understand why they would be used based on how the resources are consumed by ...
Activity Based Costing systems in hospitals are described. The cost drivers are identified.