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Deeper Into Simulation, Part 3: Activity Based Costing

Blog: Method & Style (Bruce Silver)

The previous discussion leads naturally into simulation use case 3, which deals with Activity Based Costing. A number of users have asked me if simulation provided activity based costing, and I always said yes, since I assumed it could. But it’s not built into the tools at all. This turned out to be a really interesting part of the training to develop. All completely original, since the modeling tool vendors don’t really talk about it (or at least correctly), and the ABC literature doesn’t mention simulation, either.

Activity Based Costing is not just determining the cost of each process activity from its active labor costs, or even its total direct costs. Yes you get that directly from the simulation model, as in use case 2. ABC is about allocating the indirect costs, both labor – management/supervisory, plus ancillary functions – and fixed overhead, like plant and equipment. You can’t get that from the simulation model!

Or can you?

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