Solved ABC : Haba Laboratories Activity-Based Costing Accounting
Haba Laboratories Activity Based Costing (ABC)
Activity-based costing (ABC) is an accounting process that enables Haba Laboratories to assign overhead activities costs of the firm to the specific products and services it produces & delivers.
Compare to the traditional process, ABC assigns the overheads and indirect costs less arbitrarily and focuses on true relationship between costs, overhead activities, and related products (manufactured, produced) / services delivered by Haba Laboratories.
Solving Haba Laboratories Costing Problem with ABC Accounting Method
Haba Laboratories markets two types of products in the Personal & Household Prods. industry. For sake of simplicity let us call them Consumer/Non-Cyclical Standard product and Consumer/Non-Cyclical Custom Product. Standard Product is lot simpler than Custom Product, so Haba Laboratories produces Standard product in large batch sizes compare to Custom product which is produced in smaller batch sizes.
Haba Laboratories Standard Product
Haba Laboratories Custom Product
The difference between the traditional method and ABC can be only noticed when there are different types of products produced by Haba Laboratories and indirect costs comprise a significant chunk of the overall cost structure of Haba Laboratories.
To calculate the "Overhead Recovery Rate" add up all the indirect costs that Haba Laboratories is incurrring for both the standard and custom product.
Return on Sales Calculations for Haba Laboratories
Activity Based Costing System for Haba Laboratories
Activity Based Costing can improve the costing process at Haba Laboratories in three prominent ways –
After identifying all the support activities and associated costs & factors that drive those cost, managers at Haba Laboratories can take following steps to conduct ABC costing -
Customer invoicing cost Invoices per year 50 240 290 29164 100.56551724138 5028.275862069 24135.724137931 0.4536517378265 2.132507875767
The profit per unit of standard product is higher than custom product under ABC technique.By comparing the Return on Sales numbers under both traditional and ABC technique - We can easily conclude that ABC is far more effective costing technique for Haba Laboratories as it stops inefficient allocation of costs to Standard product. Haba Laboratories should focus on standard product rather than custom product as standard product is delivering much higher returns on sales.
References for Activity-Based Costing for Haba Laboratories
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You can download Excel Template of Activity Based Costing of Haba Laboratories