Four-stage Activity-Based Costing (ABC) system modeling and computer-based application design

Abstract

A Four-Stage Activity-Based Costing (4ABC) model and a computer-based system are created in this research to demonstrate the ABC cost allocation process. 4ABC uses four different levels of activity cost driver to allocate the cost from resource to product. These cost drivers are Resource-to-Department Cost Driver, Department-to-Function Cost Driver, Function-to-Activity Cost Drivers and Activity-to-Product Cost Driver. CoA is then categorized into four different activity levels: Department, Function, Activity and Product. The goal is to estimate how much cost represented by activities that a certain type of product absorbs. 4ABC model can trace both indirect cost and direct cost together at the same way so that it eliminates the difference in treatment between them in traditional cost system. Time-based cost drivers were discussed for more accurate activity cost allocation. 4ABC model produces the cost information including product total cost and unit cost, total direct and indirect cost, activity cost at four different activity levels profit and profitability analysis. With the computer-based system 4ABC, the ABC cost allocation process is simplified.