Activity-Based Costing (Abc); Hunter Company

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Activity-based Costing (ABC) Hunter Company
Emmanuel Achirem
ACC 560-Managerial Accounting
Dr. Lotfi Geriesh
Strayer University
08/04/2012

Activity-based Costing (ABC) Hunter Company, 1

Introduction
Over the past two decade’s adoption of Activity-Based Costing ABC has been tossed around like a hot potato by every size and type of organization. It was adopted by organizations ranging in size from huge multi-national companies like General Motors to the much smaller Alexandria Hospital. (Lanen, Anderson, & Maher, 2011) Some companies began the initial processes but stopped short of actual implementation when they discovered more time and resources were needed to effect the change so management ran from it just
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In the time-driven approach, the ABC team estimated the time required to perform each activity. For example, the activity to set-up a new customer took 15 minutes. Since a field already existed within Hunter’s ERP system that identified whether a customer was new, assigning a customer set-up cost to a new customer became a simple transaction. For order entry, the team learned that every order took about five minutes to enter the basic order information, plus three minutes for each line item on the order. Again this was a simple calculation to implement since the ERP system already tracked the number of line items for each order. Finally, the team learned that order expediting was triggered by a request by the customer to rush the shipment, resulting in an additional 10 minutes of time to coordinate the expediting. The order included a field that identified it is a “rush order.” The project team could write a simple equation to estimate the Inside Sales Department time required for each order received:
Inside Sales Process Time = 15*[New Customer] + 5 + 3*[Number of Line Items] + 10*[Rush]

The Inside Sales Department cost for the order was obtained by multiplying this time by the cost per minute of Inside Sales Department resources. This process was replicated in each department to arrive at the total cost of producing, handling, and fulfilling the order.
Note that once

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