Introduction of the activity based costing

Do you want to get rid of the dubious overhead surcharges in your cost accounting? And start being aware about all  the costs? Both in terms of variable and fixed costs?

Then the introduction of the activity based costing is the perfect solution for your company.

The activity based costing brings you the following advantages:

  • Honest price estimation of all the products and services based on the costs per work step and quantities per work step (reference value)
  • Knowledge of what a unit of a product or a service really costs – including the immediate administration and the distribution costs
  • Information about which products make a profit and which should be better removed from the range
  • Productivity measure throughout the workflow – from production through management to sales
  • Setting cost and performance targets for all the activities, including administration and sales
  • Recognizing where rationalization measures make sense and where and how productivity increases are possible

How do we introduce the activity based costing?

The introduction of the activity based costing is a consulting project that lasts from 3 to 6 months. The number of days required depends on the quantity of cost types, cost centers and objects, the cooperation of the executives and the data quality.


In order to ensure the successful implementation, it is crucial to involve the employees in the project. During the kick-off meeting, we clarify the project objectives and procedures.

  • Together with the responsible employees, we review and analyse the base material such as cost center number ranges, cost unit number ranges, division of savings and cost typology.
  • Afterwards we review the costs from the financial accounting and divide them into cost centers (production, warehouse, sales, etc.).
  • Analysis of the existing numerical material
  • Determination of the core processes
  • Determination of the work steps (smallest units: quantities x time)
  • Recognition of the employee capacities
  • Compaction of the work steps to sub-processes (reference quantities)
  • Determination of the cost rates based on the accountable reference quantities (instead of fictitious overhead rates!)

Clarifying discussions with the cost center managers, e.g. production manager, machine operator, sales manager, financial accounting, QA leader etc.:

  • Which steps cause which costs?
  • What do these costs account for?
  • For which other department are these costs incurred?


How can the costs be allocated to the individual work steps? For example, in the “customer care” process, the work steps of the internal sales inspection service, the bid submission, the customer order entry, the master data maintenance, the financial accounting compliance information, the invoice checks and the reminders come into play.

The solution is to convert the work steps to  reference quantities in terms of units per output: units, hours, treatments, running meters, liters, kg, kilometers, etc.

Thus, a price list can be determined for each work step. There is e.g. 5 euros per audit.

Creating a preliminary cost estimate for a product

After determining the actual fixed costs per work step and reference quantity – and no fictitious fixed costs surcharges – we can calculate the individual products:

  • Direct costs per reference (e.g. machine hour)
  • Fixed costs share per reference (e.g. billing)

Revenue planning with the sales department

Together with the sales department, we can now carry out the sales and sales planning – according to  the quantities and sales.

The planning process can be divided into customers, customer groups, sales staff, region, product and product group.

Capacity planning in production, administration and sales

  • Determination of the cycle time per work step and a planned cost center
  • Summary of all the individual activities of an employee during the sub-processes (all activities belong to the “customer order”)
  • Determination of the full-time equivalence time of the sub-processes
  • Demonstration of the over or under capacities

Simulation of variable quantities and prices

  • How many more units (pcs, time, etc.) need to be sold if the price goes down?
  • How high can be the discount granted to a major customer without incurring a loss?
  • Is it worth to sell to given customer groups (e.g. export market, micro customers, etc.)?
  • Is it worth to continue to produce or offer given products, product groups or services?
  • What is your target revenue per customer, customer group, market?
  • What is your target revenue per product, product group or service?