Gary Cokins on The Truth about Activity-Based Costing with Steven Sacks for CPA Trendlines

Profitability Analysis & ReportingManagement finance expert Gary Cokins says there's nothing wrong with activity-based costing, in this conversation with Steven Sacks for CPA Trendlines. Except that you're probably doing it all wrong.Takeaways:– The deficiencies with product and service line costing have to do with overhead allocations. The problem is, it's convenient for the accountants to allocate the overhead based on allocation factors, like labor hours, number of units produced in a manufacturer, headcount, number of employees, and square feet, even though none of them reflect the unique consumption relationship between how the outputs products and services consumed.– Rapid prototyping is really meant as really to get buy-in and displace misconceptions. The accountants can build a model that replaces percentage estimates with data that can be extracted from ERP or production systems.– The analyses must go below the gross profit margin line, including distribution channel expenses, marketing expenses, selling expenses, customer service expenses, to basically get a P&L almost by the customer to determine whether the largest customer is also the most profitable.– EPM and CPM tools will enable young professionals to move away from vouchering and more toward problem-solving. Their jobs will become more meaningful and fulfilling.– Accountants and financial executives really need to create a culture of discovery and investigation. And this is where analytics come into place. Because analytics creates questions. It creates better questions and even more questions. And they also need to have tolerance for making mistakes, as long as they learn from the mistakes.