We have taken example of a company which deals with both Products based and proj ect based software.

In process of developing both the some things are common and for differentiating the products project based software will be according to th e customer requirement. Keeping the above assumption In mind we have prepared the following questions. 1. Identify the important account heads you expect to see in the company s tria l balance (about 20-25 accounts) 2. List the activity heads you want to include in the ABC system (about 2025activities) 3. Give the basis of allocating each of the account heads to the activities (the cost driver for each activity to be identified) 4. Give an approach of how the company can use ABC to determine the price o f its software 1. Identify the important account heads you expect to see in the company l balance? Answer 1 These are the following accounts that we see in the company s trial balance Account Heads 1. Rent Account 2. Machinery and Equipment Account 3. Depreciation Account 4. Salaries Account 5. Outstanding Salary Account 6. Outstanding Rent Account 7. Bank Account 8. Cash Account 9. Electricity Account 10. Rate, Taxes and Duties Account 11. Utility Account 12. RND Expense Account 13. Capital Account 14. Processing Expense Account 15. Sales Account 16. Travelling and Convenience Account 17. Service Account 18. Commission on Sales Account 19. Loan Account 20. Interest Account 21. Outstanding Interest Account 22. Debtor Account 23. Bills Receivable Account 24. Training and Development Account 25. Entertainment and Ledger Account The following account heads will be there in the trial balance of the company we have assumed that the company is both a product based and a project based compa ny so the above accounts will count as the major financial heads. s tria

2.

List the activity heads you want to include in the ABC system?

ACTIVITY HEADS 1. Strategy employee costs

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

Product management employee costs User interface review costs Documentation costs Design & coding Unit testing costs Reusable software components costs New software costs Quality assurance labor costs Automated tests preparation costs Patch creation labor costs Cds preparation costs Marketing & sales labor costs Demo costs Facilities utilization costs Env. Operations costs General administration costs Hr operation costs Project implementation costs Research & development costs Relocation costs Main storage Virtual machine volatility Computer turnaround time Virtual machine experience Language experience

The above are the activity heads which are been included in the ABC of the compa ny 3. Give the basis of allocating each of the account heads to the activities (the cost driver for each activity to be identified)? Activity heads Basis of allocation 1. Strategy employee costs Man days/ number of usage hours/number o f employees 2. Product management employee costs Man days/ number of usage hours/ number of employees 3. Ui review costs Number of ui reviews 4. Documentation costs Number of pages/ number of xerox and printer usa ge hours 5. Design & coding Number of successful codings & designs 6. Unit testing costs Man days/ number of usage hours/number of employ ees 7. Reusable software components costs Number of reusable components 8. New software costs Number of software licences 9. Quality assurance labor costs Number of man days 10. Automated tests preparation costs Number of automated tests 11. Patch creation labor costs Number of employees 12. Cds preparation costs Number of cds 13. Marketing & sales labor costs Number of man days 14. Demo costs Number of demos 15. Facilities utilization costs Number of hours of common infrastructure used 16. Env. Operations costs Number of csr activities undertaken 17. General administration costs Square feet of building 18. Hr operation costs Number of recruitments 19. Project implementation costs Number of new projects undertaken 20. Research & development costs Developments in existing product/ new pr oduct 21. Relocation costs Number of domestic/ foreign visits made during a period

22. 23. 24. 25. 26.

Main storage Number Virtual machine volatility Computer turnaround time Virtual machine experience Language experience Number

of machines Number of machines hours Number of machines hours Number of machines of translated versions

The above are the activities heads and allocation cost drivers are also there fo r each. 4. Give an approach of how the company can use ABC to determine the price o f its software?