Choosing activity based costing software

Activity based costing assigns costs to resources and products to produce units of cost. A unit cost is the "average total cost" of producing one unit of output. You calculate the unit cost by dividing the total cost of production by the total number of units of output produced.

The software you choose needs to be able to fit the changing needs of your company. You have chosen to purchase activity based costing software to help you make decisions to allocate your resources. These decisions represent change and hopefully growth in the company. The software package needs to be able to grow with the company.

Your software needs to be able to make organizational changes easily. For example, you may find that you can consolidate the shipping and receiving departments as you look at the associated costs. As you make these changes in the company, it should also be easy to make these changes in the program. You will want to do trial runs on the program anyway to ensure that you are seeing a cost savings.

All activity based costing software tools have multiple dimensions. However, you need to make sure that your software is truly multidimensional. This means you will want to be able to compare three or four cost dimensions simultaneously. This will help you compare the different costs more dynamically and give you a better idea on what decisions to make.

You will want to find a software package that integrates data well with the systems you have in place. You are probably collecting a lot of the data you will need for the software already. So you will want to find a program that can use the data in the form that it is currently being saved as. For example, your data may contain thousands if not millions of inputs. You will not want to have to convert the data to a new form to be used.

Additionally, the data must come out of the activity based costing software in a format that you can use. For example, if the software creates a proprietary data base, one that can't be used by any other program, how effective will that data be for your decision making process?

You will also need to evaluate the software compared to your own business. Some software may not match up for your needs at all. For instance, one program may only allow for one administrative cost. You may have several administrative costs that you need to account for. If you purchase this software, it won't break the costs out like you need them to make good decisions.

Lastly, make sure you evaluate your software provider like you would evaluate any vendor that you deal with. Some companies will put their software on the shelf and not provide the technical support to their customers or they will under fund the help service line. You should always get recommendations from current users before deciding on a vendor in this business or any other.

In summary, activity based costing software gives you many different options to support your business. Decide what parameters you will be need the software to cover and then find the company that best fits your solution.

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Choosing activity based costing software