ABC_Brick_Manufacturing_Professional.pptx

business activity cost for brick

1. Professional Activity-Based Costing (ABC) for Brick Manufacturing Comprehensive Cost Estimation, Cost Centers, and Activity Cost Calculation

2. Cost Estimation Methods 1. **Intuitive Method** – Based on expert judgment, quick but less accurate. 2. **Analogical Method** – Uses past project data to estimate costs. 3. **Parametric Method** – Uses mathematical models and cost relationships. 4. **Analytical Method** – Breaks down costs in detail, most accurate.

3. Comparison of Cost Estimation Methods

4. Activity Categorization 1. **Unit-Level Activities** – Cost per brick (e.g., material usage, labor per brick). 2. **Batch-Level Activities** – Cost per batch (e.g., kiln loading, quality testing). 3. **Product-Sustaining Activities** – Costs for designing, branding, product support. 4. **Facility-Sustaining Activities** – Costs for electricity, administration, maintenance.

5. Identifying Cost Centers • **Direct Cost Centers** – Raw material, labor, kiln operation. • **Indirect Cost Centers** – Electricity, fuel, maintenance, quality control. • **Key Resource Drivers** – Clay usage, fuel consumption, labor hours.

6. Indirect Cost Analysis & Cost Driver Rates • **Common Indirect Costs:** - Electricity (driven by machine hours) - Fuel (driven by kiln running hours) - Maintenance (driven by equipment usage) • **Cost Driver Rate Calculation:** - Example: Electricity Cost per Machine Hour = Total Electricity Cost / Total Machine Hours

7. Assigning Resources & Determining Cost Center Rates • Allocate costs to cost centers based on usage. • Example: - Total labor cost = $10,000, total labor hours = 2,000 - Cost per labor hour = $10,000 / 2,000 = $5 per hour.

8. Identifying & Analyzing Activities 1. Identify activities for each process stage. 2. Analyze resource consumption for each activity. 3. Assign costs to activities based on drivers.

9. Defining Activity Drivers & Cost-Driver Rates • **Each activity is assigned a driver:** - Machine hours for molding - Labor hours for manual work - Kiln running hours for firing • **Activity cost-driver rate formula:** - Activity Cost-Driver Rate = Total Activity Cost / Total Cost Driver Units

10. ABC Calculation Example 1. Identify cost drivers for each activity. 2. Calculate cost-driver rates. 3. Assign costs to activities. 4. Calculate total cost per brick. Example: • Clay Extraction: (10 per ton × 100 tons) = $1,000 • Molding: (0.05 per brick × 50,000 bricks) = $2,500 • Kiln Firing: (40 per hour × 100 hours) = $4,000 • **Total = $9,500**

11. ABC Implementation in Brick Manufacturing

12. Conclusion & Benefits of ABC • **ABC improves cost accuracy and transparency.** • **Helps in identifying inefficiencies and cost-saving opportunities.** • **Provides better decision-making in resource allocation and pricing.**