Activities are processes or procedures that consume costs and time. In addition to cost elements and subelements, costs may be associated with an activity. Activities may be directly related to building items, such as runtime or setup time; or they may be indirect, such as purchase order generation, payroll, and engineering activities. The goal of activity based cost accounting is to accurately identify your product costs, especially overhead costs.
Use activities to assign indirect costs to items based upon the effort expended to obtain or produce the item, rather than as a percentage of a direct cost or an amount per item.
1. Enter an activity.
2. Check Multi-Org to indicate whether the activity name is a multi-organization activity to share with other organizations. Note: If disabled, the name is only available to the organization that creates it. If enabled, only the activity name is shared, not the activity.
3. Select the activity default basis.
Basis: is the method used to determine how to charge a transaction or apply product costs. The value you select here is defaulted when you define item costs. The activity default basis will override the subelement default basis as long as the basis is valid for the cost element.
Activity: Used to apply activity costs to items. The activity basis type can only be used with the material overhead subelement. The item cost is calculated by multiplying the activity cost by the ratio of the number of times the activity occurs, divided into the cumulative quantity of the item associated with those occurrences.
Item: Used to earn and apply costs for all subelements. For material and material overhead subelements, you charge a fixed amount per item. For resource, outside processing, and overhead subelements, you charge a fixed amount per item moved in an operation.
Lot: Used to earn and apply costs for all subelements. The item cost is calculated the same as an Item basis cost, except the unit cost is divided by the cost type lot size to derive the cost per item.
4. Optionally, select a date to inactivate the activity.
5. Enter the Activity Measure (allocation basis or cost driver) for your activity. For example, if the activity is allocating purchasing costs, the activity measure might be the number of purchase orders generated during a given period.
6. Choose the Activity Costs button and select a cost type to associate with your activity. Each activity can be associated with any number of cost types and each cost type and activity combination can have a different cost.
7. Enter the total cost budgeted for the activity cost pool. This is the total activity cost you expect to incur during a specified time.
8. Enter the total number of times you expect to perform this activity during the budget period.
The system calculates the cost per occurrence by dividing the total cost by the total occurrences. This cost is used when you use a basis type activity for the material overhead subelement.