Among all the fun and exhilarating business experiences, cost accounting doesn’t fall in the top 5 for most entrepreneurs. That is especially true for non-financial business owners, managers, and entrepreneurs. If you have been lucky enough, you may have had a few encounters with costing and accounting, from an innocent mistake to a full-blown migraine.
Consider a scenario where your business makes important business decisions based on inaccurate costing data. This was the story of a renowned automotive and appliance manufacturer of deep-drawn components, for several years. On adopting Activity Based Costing (ABC), they discovered a startling truth – their cost calculations were off the mark and it was costing them dearly.
The Heroic Cost Accounting Story
In 2019, a renowned 2-wheeler manufacturer faced significant challenges with its traditional costing methods. The company relied on standard costing, often leading to inaccurate product cost allocations.
For instance, traditional costing indicated that the cost of producing a cover was Rs. 143.50, which did not reflect the actual resource consumption. This discrepancy hindered the company’s ability to identify unprofitable products and optimize pricing strategies, ultimately affecting its profitability.
To tackle these challenges, the brand undertook the following actions:
Adoption of Activity-Based Costing (ABC): The company implemented ABC as a more accurate method for allocating costs based on specific activities rather than arbitrary measures.
Identification of Activities: The business mapped out all activities involved in its production processes, from raw material procurement to manufacturing and distribution.
Cost Driver Analysis: The company identified cost drivers for each activity, allowing it to allocate overhead costs more accurately. This involved determining how different activities contributed to the overall cost structure.
Cost Recalculation: With ABC in place, the business recalculated the cost of producing a cover, discovering that the actual cost was Rs. 136.68 per unit, significantly lower than previously estimated.
Shifting from traditional costing methods that can turn into a nightmare without warning to a more seamless and technologically integrated approach requires a change in mindset and the right tools.
You Need a Hero… Or a Cost Accounting Software
Imagine having a tool that combines the precision of a business' activity-based costing approach with the power of modern technology—helping you seamlessly evade those sneaky accounting headaches.
By leveraging sophisticated ABC software like MyABCM, business managers can automate identifying activities, assign costs more accurately, and analyze profitability more precisely.
MyABCM is so versatile, it
Identifies the most and least profitable products, services, customers, or regions.
Supports data-driven decision-making to enhance profitability.
Allows users to simulate financial scenarios to evaluate the impact of potential changes in costs, pricing, or resource allocation.
Offers flexible reporting and analysis tools tailored to the specific needs of different industries.
Scales with organizational growth and complexity.
In fact, it is designed to communicate with all ERPs on the market, so rest assured, you can expect:
Real-time tracking of costs associated with various activities,
Greater productivity for your team with fast and secure information exchange.
Automatic data transmission reduces human errors and eliminates manual tasks.
Facilitates detailed analysis and insights into costs and their implications.
Data integration enables a complete and accurate view of informed and strategic decisions.
And…
Powerfully integrates with your existing BI solution to enhance your BI reports with deeper insights and turn data into a competitive advantage to improve your business’s operational efficiency.
Ready to Eliminate 75% of Your Cost Accounting Headaches in One Fell Swoop? Explore MyABCM today and discover how it can transform how you manage costs and drive profitability. For queries and details, get in touch with us here!
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