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Activity-Based Costing Calculator
Trace overhead to the activities that cause it, charge each product or customer for what it uses, and see its true margin next to the one your accounts show.
This tool also runs as a stage in a playbook, which takes you through several tools in order:
- Reduce business costs Stage 3 of 4: what actually drives those costs? Start at stage 1
Not following the playbook?
The first stage: a cost pool for each activity
- Gather the overhead into a pool for each activity, such as machine setups.
- Give each a cost driver: what makes it busier, such as the number of setups, and how many there were in a year.
- Three or four of the largest activities are enough to start. The data usually exists: the planning system, the shipping log, the change records.
Overhead not traced to an activity (optional)
Overhead you leave out of the pools, such as rent or the finance team. It is spread by share of sales in both methods, so it doesn't change the comparison.
Your figures never leave your browser
The activities, products and customers stay on your computer and in your progress file. To write the diagnosis, only the amounts and margins are sent to our server, by place in your list. How it works
The second stage: charge each one for what it uses
For each product line or customer type: its sales, its direct costs, and how many of each driver it used in the year. The tool compares its margin with overhead spread by sales and with activity-based costing.
What you'll do
Margins, before and after
The cost to serve each one
The rates
Save your progress
Download your progress file to continue from this point any time, on any computer: choose it under "Coming back?" at the start of the tool. Each new file includes everything so far, including the earlier stages when they are connected, so keep the latest one. Your work stays in this browser only until you close it.
Not saved yet.
Take your results with you
A PDF of the margins before and after, the cost to serve each product or customer, the rates and the diagnosis.
About the tool
Why it exists
Find which products and customers really cost money to serve
Most accounts spread overhead by volume, so a small, fiddly order looks as cheap to serve as a large, simple one. Activity-based costing charges overhead by what each product or customer actually uses, which often shows that some lose money once their setups, changes and shipments are counted.
This tool works on its own, and as stage 3 of our playbook for reducing business costs, where it picks up the cost areas stage 2 found out of line. For the method, see our guide to activity-based costing.
The method
How the tool works
Two stages. First, overhead is gathered into a cost pool for each activity, and divided by its driver units for the year to give a rate, such as 500 per setup. Second, each product or customer is charged the rate times the units it used.
Before and after. The old method spreads the same overhead by share of sales. The tool shows both margins side by side, after direct costs.
What isn't traced. Overhead left out of the pools, and pool units nobody was charged for, are spread by sales in both methods, so they don't change the comparison.
Losing money. When a product or customer loses money with ABC, the tool asks what you will do: reprice, set a minimum order, charge for what drives the cost, change how it is served, keep it on purpose, or stop. Precision matters less than direction.
What leaves your computer. The names stay in your browser and your progress file. To write the diagnosis, the page sends our server only the amounts and margins, by place in your list, and the server keeps nothing.