Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 57

Applications of ABC in Government Activity-based costing is used widely within the U.S. government. One example is the Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS). APHIS helps to protect U.S. agriculture from exotic pests and diseases, to minimize wildlife/agriculture conflicts, and to protect the welfare of animals used for research or sold wholesale for pets. APHIS performs its services for a variety of users, some of whom pay a user fee. ABC was adopted to provide an accurate basis for determining these fees, and also for analysis of the effectiveness and efficiency of its programs in meeting the service’s overall goals. The National Institute of Health and the U.S. Mint also use ABC/M to help these organizations achieve their missions effectively and efficiently.

Required

1. Identify an example or two of a governmental entity that you think could benefit from the application of activity-based costing, and explain why.

2. Identify some of the resources, activities, and cost drivers you would expect to see in this application.

Step 1 of 3

Activity Based costing:

Activity based costing is a method of allocating overhead cost based on the cost drivers that directly affect the activity of the cost. These cost drivers are directly related to the activity and hence, provide the better results and using a single cost driver.