Capacity in ABC
Rajendra Patil, Consultant, India, Member
Your first statement is very true. But in practical situations we try to go as near as possible. It is not possible to get the most accurate data. If we wait for the same then we may not be able to start the project. Also the use of the ABC is for taking business decisions, and sometimes even 85% accuracy is good enough. This does not mean that we should not try for 100% accuracy, but at the same time we should also not wait for it
Could you please explain the concept of ‘HR Equivalent Cost of Performing Activity’?
I guess it could be similar to the calculation of FTE.
The efficiency taken here is actually the practical time for the employee works within the given time. It is not how well she performs the activity. It is seen for the time taken to perform the activity. Here the calculation is for the ‘total time available’ that is the capacity of the cost center. Out of this based on the activities, the time taken to perform them and their volume will decide how much time utilized and rest will be ‘capacity available to use’ (aka idle time). The supervisor’s time taken in the capacity calculation is limited to her contribution to various activities performed that are related to the product, customer or channel (depending upon the definition of the cost object). Actually we do not consider the time taken by various reports or meetings etc.
The total cost of the cost center is divided by the total time available to calculate the ‘cost per minute’ of the cost center. If there are more supervisors in the department then their cost per minute may go up. Actually sometimes it better to compare the cost per minute rather than the total cost of the cost centers.