Organization Applicability Activity-Based Costing (Abc). Cisco Corporation.

¶ … organization applicability Activity-Based Costing (ABC). CISCO Corporation. Identify a product service organization ABC. You technique selling administrative costs. Then identify activities ABC cost drivers activities.

Activity-Based Costing at Cisco

Cisco Systems is one of the largest global corporations. It is headquartered in San Jose, California, and it employs over 70,000 individuals. The organization manufactures consumer electronic goods, as well as other types of product and services, such as the networking or communication.

Cisco Systems is a private company, meaning that it discloses limited information to the public. The accounting information and methods it uses are as such often withheld from the public. This virtually means that the reader will not know what accounting systems the company uses. However, it is possible at this stage to suggest the usage of ABC in the management of one of their specific products -- the router.

Activity-based costing is an accounting method which assigns costs of production to the products themselves, based on the actual levels of resources consumed. It is different from other accounting techniques as it differentiates between the resources consumed, rather than assigning costs equally. It as such helps in the formation of pertinent and relevant prices for the products manufactured.

At the level of the routers manufactured by Cisco, the recommendation of using the ABC technique is based on the following features:

Routers are only a small part of the products manufactured at Cisco, meaning as such that the application of ABC could stimulate efficiency within the segment

Routers could as such become better managed and their development would be supported through efficiency and realistic information

Prices would be set accordingly to the costs incurred in the creation of the routers

The development of the segment would be supported and this is essential as routers would become more popular as a means of accessing information on the internet through mobile devices.

At the level of the router as a product, three essential activities are identified, each with their own cost drivers. In this order of ideas, the main activities include the research and development of the router, the production of the router and the distribution of the router. The cost drivers for each of the activity are revealed in the table below.

Activity

Cost drivers

Level of cost for each driver (per 1,000 routers)

Cost driver application rate

(Cost of activity / volume)

1.

Research and development

- Developments within the market

- Competition

- Customer demands

- 50,000

- 25,000

- 10,000

2.

Production

- Resources

- Labor force

- 10,000

- 20,000

3.

Distribution

- Contracts with intermediaries

- Logistics expenditures-

- 1,000

- 7,000

The inputs used included reviews of manufacturing process, ABC implementation and company data on costs, prices and other accounting methods. At the level of the company data, this was recent, characterizing the company's situation throughout the past year. Still, since this level of detailed information is not offered to the public, the levels of costs incurred for the activities identified were estimated.