Activity Based Costing Case Study
This Accounts Receivable department reduced its annual costs by $350,000 with Activity Based Costing (ABC) models that were built with AIM-Activity Information Modeling®.
These Activity Based Cost charts and graphs
are from the Accounts Receivable (Premium Accounting) department of a U.S.
insurance company. The first chart shows the activity cost for handling
payments received within 60 days of due date.
These charts were used to analyze activity cost and activity time. The department managers were surprised to discover that the most expensive activity was research. Research cost for items that are paid on time is a needless expense.
The company's internal procedures required this research activity. It seemed fine and prudent. But this policy was made without the knowledge of what it would cost. Their AIM activity based cost project discovered it's annual cost was $202,000 (4 FTE's).
The company revised their procedures and stopped conducting research on all items under 60 days. This, and 4 other simple changes, reduced costs by more than $350,000 within the first 6 months. These savings were realized through headcount reductions as people were lost through attrition.
This ABC project was conducted over 10 weeks at a cost of $26,000. It delivered over 160 chart and graph reports from these ABC (activity based cost) models:
- Staffing Model
- Process Cost Model
- Activity Cost Model
- Payment Value Model
- Age of Item Model
- Customer Segment Cost Model
- Computer System Utilization Model
This chart provides
the detail of all activity hours, cost and percent. The format is very useful
for Activity Based Costing analysis and reporting models.
| Activity Hours, Cost & Percent for 0-60 days items | ||||
| Hours | Cost | % | ||
| Total | 54,081 | $1,459,623 | ||
| Researching | 7,489 | $202,134 | 13.848% | |
| Book Maint | 5,499 | $148,409 | 10.168% | |
| Raise discrep | 5,243 | $141,494 | 9.694% | |
| Payment Entry | 3,429 | $92,556 | 6.341% | |
| Inbound call | 2,720 | $73,407 | 5.029% | |
| Clean up | 2,404 | $64,896 | 4.446% | |
| Notate Initial List | 2,345 | $63,300 | 4.337% | |
| AE | 2,306 | $62,236 | 4.264% | |
| Outbound call | 2,129 | $57,449 | 3.936% | |
| 1,872 | $50,534 | 3.462% | ||
| Other Communication | 1,853 | $50,002 | 3.426% | |
| Update Workstation Notes | 1,518 | $40,959 | 2.806% | |
| Notate 50K List | 1,478 | $39,895 | 2.733% | |
| Follow-up 2nd request | 1,202 | $32,448 | 2.223% | |
| Clean up/prep to send | 1,183 | $31,916 | 2.187% | |
| Reconcile | 1,104 | $29,788 | 2.041% | |
| Clean up/prepare to send | 1,064 | $28,724 | 1.968% | |
| Disbursement | 946 | $25,533 | 1.749% | |
| Completion of form | 808 | $21,809 | 1.494% | |
| Other Book Maintenance | 729 | $19,682 | 1.348% | |
| Review Potential Cancel List | 670 | $18,086 | 1.239% | |
| Other Cash Procg Stmt/DO | 532 | $14,362 | 0.984% | |
| Other Discrepancies | 512 | $13,830 | 0.948% | |
| Balance | 473 | $12,766 | 0.875% | |
| Follow-up | 453 | $12,234 | 0.838% | |
| Other Admin Tasks | 434 | $11,703 | 0.802% | |
| Other Cash Processg Book Cash | 374 | $10,107 | 0.692% | |
| Training with Buddy | 363 | $10,107 | 0.692% | |
| 800 line calls- inbound | 355 | $9,575 | 0.656% | |
| Expensing | 276 | $7,447 | 0.510% | |
| Other A/C | 237 | $6,383 | 0.437% | |
| Balance A/C | 221 | $5,851 | 0.401% | |
| Follow-up 3rd request or more | 217 | $5,744 | 0.401% | |
| Other Cancellation | 210 | $5,559 | 0.401% | |
| Statement | 179 | $4,772 | 0.328% | |
| Acct Current | 175 | $4,665 | 0.328% | |
| Faxing/mailing | 148 | $3,946 | 0.255% | |
| Voice Mail | 138 | $3,724 | 0.255% | |
| Complete form | 118 | $3,680 | 0.219% | |
| Other Statement | 99 | $2,639 | 0.146% | |
| Update run-off date | 89 | $2,373 | 0.146% | |
| Filing | 79 | $2,106 | 0.146% | |
| Review Cancel Paid/Clear List | 59 | $1,596 | 0.109% | |
| Other Reinstatement | 49 | $1,572 | 0.109% | |
| Complete Transmittal | 41 | $1,093 | 0.109% | |
| Other Training | 39 | $1,040 | 0.109% | |
| Other Meeting | 34 | $1,003 | 0.109% | |
| Other initial list | 31 | $906 | 0.073% | |
| Complete 552 | 29 | $773 | 0.036% | |
| Prepare documentation | 23 | $613 | 0.036% | |
| Escheat | 20 | $582 | 0.036% | |
| Posting | 19 | $531 | 0.036% | |
| Conference Call | 16 | $583 | 0.036% | |
Our experience conducting ABC (activity based costing) projects with more than 500 organizations has consistently achieved similar results.
Let us know how you'd like to learn how our AIM Activity based costing models will help you reduce costs and improve performance.
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