Solved ABC : SFC Energy AG Activity-Based Costing Accounting
SFC Energy AG Activity Based Costing (ABC)
Activity-based costing (ABC) is an accounting process that enables SFC Energy AG 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 SFC Energy AG.
Solving SFC Energy AG Costing Problem with ABC Accounting Method
SFC Energy AG markets two types of products in the Semiconductors industry. For sake of simplicity let us call them Technology Standard product and Technology Custom Product. Standard Product is lot simpler than Custom Product, so SFC Energy AG produces Standard product in large batch sizes compare to Custom product which is produced in smaller batch sizes.
SFC Energy AG Standard Product
SFC Energy AG Custom Product
The difference between the traditional method and ABC can be only noticed when there are different types of products produced by SFC Energy AG and indirect costs comprise a significant chunk of the overall cost structure of SFC Energy AG.
To calculate the "Overhead Recovery Rate" add up all the indirect costs that SFC Energy AG is incurrring for both the standard and custom product.
Return on Sales Calculations for SFC Energy AG
Activity Based Costing System for SFC Energy AG
Activity Based Costing can improve the costing process at SFC Energy AG in three prominent ways –
After identifying all the support activities and associated costs & factors that drive those cost, managers at SFC Energy AG can take following steps to conduct ABC costing -
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 SFC Energy AG as it stops inefficient allocation of costs to Standard product. SFC Energy AG 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 SFC Energy AG
MS Industrie Activity Based Costing (ABC) Solution
Noratis Activity Based Costing (ABC) Solution
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KHD Humboldt Wedag Int Activity Based Costing (ABC) Solution
You can download Excel Template of Activity Based Costing of SFC Energy AG