Activity Based Costing System

SYSPRO Activity Based Costing (ABC) allows for the accumulation and recovery of costs associated with the purchasing, manufacturing and selling of items. ABC is not another inventory costing method (e.g. Average, Standard, FIFO, LIFO and Last) but, rather, it is a costing system that provides you with a different method of calculating these costs - overhead costs are accumulated against items by attaching elements of cost at the transition points of purchasing, manufacturing, or selling.

The traditional costing method of loading overheads against a product according to the labor content becomes increasingly inaccurate when processing a diverse range of products, particularly where disparate overhead usage is involved. These overhead costs often comprise a significant portion of the total cost of a product and because ABC allows you to define the activity during which each element of cost is incurred, this costing system ensures increased accuracy in calculating the cost recovery, and therefore improved accuracy in calculating product profitability.

With ABC, you may configure costs to be fixed per batch, or based on the quantity being handled. You can recover pre-production costs such as buying, expediting and goods-in, as items are received into stock from purchase orders. You can recover manufacturing costs at the time of receipt into stock of goods from Work in Progress. The recovery of these ABC overhead costs may be over-and-above the overheads recovered using traditional methods (e.g. labor postings into Work in Progress). You can recover post-production costs, such as marketing, credit control, inspection, packing and shipping through cost of sales as the final item is invoiced.

Audit trails and journals form an integral part of this solution:

• The ABC costing variance account is designed to accumulate rounding errors that can arise during processing of a receipt into stock
• The Recoveries Estimate Report program produces a report of the expected overhead recoveries relative to the quantity of the stock item processed
• The ABC Analysis Report program prints a report listing of all the recoveries made against various elements according to a specific ledger period or all ledger periods

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