The Day I Found ABC 47a

(Verse 1) I thought I knew the costing game, But every product’s not the same. Some made in thousands, some in ten, Some take more steps from start to end. One needs painting, one needs tests, One needs setups, more than the rest. Same old overhead rate for all? That couldn’t be the right call. (Pre-Chorus 1) So I went back to my teacher one day, He looked at me and had this to say: “What does it take to make each one? What different tasks must each one run?” (Chorus) Then suddenly I saw the key: They use activities differently. Products consume activities, Activities consume resources they need. Find the activity, find what drives the cost, Trace it right, so nothing gets lost. Activity-Based Costing — ABC, A clearer picture of what costs should be. (Verse 2) We grouped the costs by what they share, And built cost pools for each activity there. Setup costs in one, inspections too, Ordering and handling in their own groups, too. One product needs a single setup, Another needs ten before it’s done. Some need inspections, some need none, Now I see why the costs don’t run. (Pre-Chorus 2) My teacher smiled and said, “You’re close, Now find the cost drivers that matter most. Count the orders, setups, inspections too, Measure activities each product goes through.” (Chorus) Then suddenly I saw the key: They use activities differently. Products consume activities, Activities consume resources they need. Find the activity, find what drives the cost, Trace it right, so nothing gets lost. Activity-Based Costing — ABC, A clearer picture of what costs should be. (Verse 3) We took the overhead and split it apart, Into cost pools, each with its own part. For every pool, we chose a driver, A measure showing what makes costs rise higher. Then we measured each product line, How much of each activity they use over time. Some need more setups, some orders too, Some need more inspections to get them through. (Pre-Chorus 3) Now we can see what each product consumes, And trace the overhead to the right pools. No more single plantwide overhead rate, We allocate costs where activities create. (Chorus) Then suddenly I saw the key: They use activities differently. Products consume activities, Activities consume resources they need. Find the activity, find what drives the cost, Trace it right, so nothing gets lost. Activity-Based Costing — ABC, A clearer picture of what costs should be. (Guitar solo) (Verse 4) Back at my teacher’s, we talked it through, “When is ABC the right choice to use?” “When products differ in the work they require, And overhead costs are getting higher. When volumes vary, and products aren’t alike, And one plantwide rate just doesn’t feel right. When complexity makes the cost picture unclear, ABC can make the real cost appear.” (Pre-Chorus 4) Now I know each product’s cost with precision, I can set the right price with a better decision. I can manage my costs and keep them in sight, No single plantwide rate can make it all right. (Final C