Basic explanation of Focost Model
“KEEP IT SIMPLE”
Some possible difficulties with ABC can lay in the way people traditionally constructed ABC models. Applying the traditional ABC approach vs. the new ABC approach must always be considered and compared before embarking on the design, construction and implementation of the ABC model, whether it be based on the traditional approach, new approach or combination of both. The new ABC approach is called time-driven ABC. Fortunately, simplification is now possible through this new ABC approach.
The solution with some possible difficulties with ABC is not to abandon the concept. ABC after all has helped many companies identify important cost- and profit-enhancement opportunities through the repricing of unprofitable customer relationships, process improvements on the shop floor, lower-cost product designs, and rationalized product variety. Its potential on a larger scale represents a huge opportunity for companies.
The Focost ABC Model is based on this revised approach, time-driven ABC (new ABC approach), but can also be set up / converted on the traditional approach.
- The comprehensive Focost ABC Model comprises 2 parts made up of 16 processes, namely:
1.1 Processes 1 to 14 (Part I of Focost ABC Model). See points 2 & 3 below; and
1.2 Processes 15 to 16 (Part II of Focost ABC Model) See points 4 & 5 below.
2. The proposed enclosed work sheets (pages 1 to 4, “The Cost Company”) reflected in the simplified diagramme of Focost ABC Model, are a summarized / abbreviated illustration of the ABC analysis (Part I of Focost ABC Model) that must be achieved through the processes outlined in the enclosed simplified diagramme.
3. In essence and simply put, as illustrated in the enclosed simplified diagramme (Part I of Focost ABC Model), the basic model has 4 main building blocks, namely:
3.1 All GL (General Ledger) expenses (resource costs) auto-assigned to activity costs pools in the Cost Matrix Worksheet – goto Page 1, Read More
3.2 Cost Matrix resource cost allocation summary – goto Page 2, Read More
3.3 Activity Cost Drivers data per Cost Object (CO) to be applied to cost matrix activity cost pools to assign activity costs to cost objects (CO’s) – goto Page 3, Read More
3.4 ABC (Activity- Based Costing) Profitability Analysis by Cost Object (CO) – goto Page 4, Read More
4. Process 15 (included in Part II of Focost ABC Model) is about results produced by the model and analysing them i.e. profitability gap analysis by cost object (co), residual income analysis, benchmarking analysis, productivity analysis, wastage determination etc.
- Process 16 (included in Part II of Focost ABC Model) is about interpreting results and taking value adding actions to bring about improvements i.e. re-engineering your business model, improve spare capacity utilization, improve profit performance and cost savings etc., decrease abnormal wastage, improve productivity and efficiency, improve residual income e.g. EVA (economic value added), business strategy modifications, improve working capital management, improve cash flow management, improve capex decisions and ROI (return on investment) incorporating cost engineering applications, improve new business quoting procedures, improve budgeting / estimating / forecasts policies and procedures etc.
Brief on How to navigate on Focost Model website pages
- On every-one of pages 1 to 4 and each page’s sub-pages, the following buttons / dialog boxes, no’s 2 and 3 below will appear on right hand bottom corner of the web page you are on.
- FULL SCREEN (1 option): This option allows you to view the full screen of every page and its sub-pages on the web page you are on. Just press this button / dialog box, “FULL SCREEN”, and scroll down / up the selected page to view full screen.
- Once you open a selected page, e.g. page 1,“DIAGRAMME ALL GL EXPENSES AUTO ASSIGNED X”, you will notice a window in the top left hand corner of your screen with the name of this page 1 that you opened. When you open this page as a full screen, you will notice a 2nd window in the top left hand corner of your screen named as e.g. “ABC-DIAGRAMME-FOR-FOCOST-WEBSITE X” using “WORD ONLINE” app. This is the full page view that you can use to scroll down / up to view the full screen.
- To exit this full screen page you are on to go to the next page, e.g. page 2, for a full screen view, just apply “X” for “ABC-DIAGRAMME-FOR-FOCOST-WEBSITE X”.
- This step will take you back to page 1,“DIAGRAMME ALL GL EXPENSES AUTO ASSIGNED X”, from where you can access “Back to diagramme” button / dialog box and then access pages 2, 3 or 4. Follow the same procedures as per above to access full screen views of pages 2, 3 and 4.
- The ZOOM dialog box can be used to increase / decrease the quantity of data that you want to see reflected on every page and its sub-pages.
- If you experience any uncertainties or problems, please do not hesitate to contact us.