--- title: Alternatives to Activity Based Costing description: How you can use SAP BW to implement both ABC costing and to then migrate to Throughput Accounting image: https://www.sapbwconsulting.com/hs-fs/file-16577582-jpg/images/people_in_a_row_looking_at_pc.jpg --- ![Activity Based Costing](https://www.sapbwconsulting.com/hs-fs/file-16577582-jpg/images/people_in_a_row_looking_at_pc.jpg) # Alternatives to Activity Based Costing Table of Contents Learn How To Implement Throughput Accounting Using [SAP BW](https://www.sapbwconsulting.com/understanding-sap-bw-in-5-minutes)  ![Throughput Accounting](https://www.sapbwconsulting.com/hs-fs/file-16577582-jpg/images/people_in_a_row_looking_at_pc.jpg?width=600&name=people_in_a_row_looking_at_pc.jpg) Activity Based Costing versus Throughput Accounting and How to Use [SAP BW](https://www.sapbwconsulting.com/blog/identifying-cause-of-data-load-error-when-using-a-sap-bw-dtp) to implement Throughput Accounting   [**Activity Based Costing**](https://www.sapbwconsulting.com/throughput-accounting-consulting) (ABC Costing) can be very beneficial but is very cumbersome to implement.  In a nutshell, you have to define [Cost Collectors](https://www.sapbwconsulting.com/total-cost-of-ownership-tco), Assign Cost Objects to each, and then do the math.   The ABC process starts with the allocation of cost from the General Ledger to several cost pools.  Activity drivers are selected that are closely associated with the [costs](https://www.sapbwconsulting.com/blog/sap-bw-tutorial-best-practice-on-requirements-gathering) in each cost pool.  From this, we can derive a cost per unit of activity.  Then we can easily roll-up the cost by multiplying the number of units of each activity and multiply that result by the cost per activity driver.  This will result in the allocation of all [overhead cos](https://www.sapbwconsulting.com/blog/how-to-determine-your-fully-loaded-cost-rate)t to the various cost objects in a consistent, logical manner. ## SAP Activity Based Costing   Unfortunately, to implement **ABC based costing, using activity based costing in SAP** requires a lot of effort and on-going maintenance, and a considerable amount of engineering effort in determining time standards, never mind maintaining them.  Most importantly, it provides almost no information as to the constraints in your system and therefore, doesn’t provide you the information you need to implement Throughput Accounting.   However, using [SAP BW](https://www.sapbwconsulting.com/blog/5-kpi-design-best-practice-guidelines) and standard **SAP Production Planning** reports, you can begin to both identify constraints in your system and move toward **Throughput Accounting**.  In my experience, you will also need to practice management by walking around (MBWA) to spot the inventory buildups in front of production operations that are the sure signs of a constraint.  However, if you have market constraints, you won’t be able to spot those issues by walking around.  Here, BW along with market analysis and Executive Dashboards can yield valuable insight into your market constraint.  Here's a quick step-by-step on how to implement activity based costing using SAP BW.   ## **6 Steps to Using SAP BW to Implement Throughput Accounting**   1. Identify Your **Constraint** 2. Define Your **Throughput Dollars Per Minute of Constraint Usage** 3. Define, per product, the **Minutes of Constraint Usage** 4. Identify, preferably in real-time, **buildups of inventory upstream of your constraint** - reduce production of these unnecessary units of inventory 5. Fully exploit your constraint, **subsume all other processes** to maximize the use of the constrained resources 6. Use **SAP BW to monitor** the units of throughput and adjust the product mix to maximize constraint usage and throughput units ![Implementing Throughput Accounting](https://www.sapbwconsulting.com/hs-fs/hubfs/Alternatives%20to%20Activity%20Based%20Costing%20-%20visual%20selection.png?width=2556&height=1620&name=Alternatives%20to%20Activity%20Based%20Costing%20-%20visual%20selection.png)   To help get you started with on Throughput Accounting journey and with implementing a simple ABC Costing model, we've developed a downloadable Throughput Accounting Calculator.   ### Throughput Accounting Calculator   You can download our [Throughput Calculator](https://hubs.li/Q021hNwz0) by clicking on the link.   ## Need Throughput Costing Consulting?   Please [contact](mailto:Lonnie.Ayers@SAPBWConsulting.com?subject=Throughput%20Accounting%20Support%20Request) us for help with your journey to throughput accounting and [greater profitability](https://www.sapbwconsulting.com/blog/sap-hana-margin-analysis).   [![Get Throughput Accounting Consulting Support](https://no-cache.hubspot.com/cta/default/118735/cb68b900-de57-47f9-93a5-86f274e4bb1f.png)](https://cta-redirect.hubspot.com/cta/redirect/118735/cb68b900-de57-47f9-93a5-86f274e4bb1f)   ## Quantum Costing vs ABC Costing     Quantum Costing is a [costing methodology](https://www.sapbwconsulting.com/blog/cots-vs-custom-development-decision-tree-analysis) that differs from Activity Based Costing (ABC Costing) in several critical aspects. While ABC Costing focuses on allocating costs based on activities and drivers, Quantum Costing takes a different approach by considering the impact of constraints on the [overall cost of a product or service](https://www.sapbwconsulting.com/blog/justify-your-project-with-sales-equivalency-analysis). It takes into account the time spent on a constraint and the revenue generated from the products or services that pass through it. This allows for a more accurate understanding of the true cost of a product or service. This also allows you to do detailed profit analytics.  When used with throughput accounting, Quantum Costing can provide valuable insights into identifying constraints, maximizing constraint usage, and adjusting the product mix to increase throughput and profitability.  As a reminder, here's the general thinking process and implementation process for implementing this approach: - Identify the constraint in the system - Define the cost per minute of constraint usage - Determine the minutes of constraint usage per product - Monitor and reduce inventory buildups upstream of the constraint - Fully exploit the constraint and maximize its usage - Use SAP BW to track throughput units and adjust the product mix accordingly ![Quantum Costing Implementation Process](https://www.sapbwconsulting.com/hs-fs/hubfs/Alternatives%20to%20Activity%20Based%20Costing%20-%20visual%20selection(1).png?width=1548&height=1278&name=Alternatives%20to%20Activity%20Based%20Costing%20-%20visual%20selection(1).png)   By following these steps, businesses can implement throughput accounting and leverage SAP BW to gain valuable insights into their operations, constraints, and overall profitability.   ## Costing in Quantum Costing   The concept behind Quantum Costing is that costs are calculated at the most detailed level of company activity, which is the invoice line. Each invoice line represents a specific quantity of a product sold to a customer, with additional dimensions such as vendor, selling location, servicing location, sales representative, customer type, warehouse/direct, and delivery method. This level of granularity allows for a more accurate understanding of the true cost of a product or service.     ## Please Leave a Comment or a Suggestion   *Would be great to get your comments on my blog and especially to hear about your experiences using SAP BW to implement TOC Throughput Accounting.*   People Who Read This Also Read: - How To Use [Google Keyword](https://www.sapbwconsulting.com/blog/inbound-marketing/how-to-use-google-keyword-planner-tool-tutorial) Planner Tool Tutorial - Top 10 Benefits for Financial Analysis in the [Latest SAP EP4](https://www.sapbwconsulting.com/blog/top-10-benefits-for-financial-analysis-in-the-latest-sap-ep4) - Leverage SAP BW to Increase [Supply Chain Inventory](https://www.sapbwconsulting.com/blog/leverage-sap-bw-to-increase-supply-chain-inventory-accuracy) Accuracy     Topics from this blog: [How-To](https://www.sapbwconsulting.com/blog/topic/how-to) [Throughput Accounting](https://www.sapbwconsulting.com/blog/topic/throughput-accounting) [ABC Accounting](https://www.sapbwconsulting.com/blog/topic/abc-accounting) ### Download SAP BW Mindmap Learn what SAP Business Warehouse is and what it does in under five minutes [![Get this Mindmap](https://no-cache.hubspot.com/cta/default/118735/8db2ad37-8211-47a3-86ae-09b6b2bb297b.png)](https://cta-redirect.hubspot.com/cta/redirect/118735/8db2ad37-8211-47a3-86ae-09b6b2bb297b) [mailto:someone@yoursite.com](mailto:someone@yoursite.com) ### Lonnie D. Ayers, PMP About the Author: Lonnie Ayers is a Hubspot Certified Inbound Marketing consultant, with additional certifications in Hubspot Content Optimization, Hubspot Contextual Marketing, and is a Hubspot Certified Partner. Specialized in demand generation and sales execution, especially in the SAP, Oracle and Microsoft Partner space, he has unique insight into the tough challenges Service Providers face with generating leads and closing sales using the latest digital tools. With 15 years of SAP Program Management experience, and dozens of complex sales engagements under his belt, he helps partners develop and communicate their unique sales proposition. Frequently sought as a public speaker in various events, he is available for both inhouse engagements and ** remote coaching. ** ![Balanced Scorecard Consultant](https://www.sapbwconsulting.com/hubfs/social-suggested-images/Balanced%20Scorecard%20Certified%20Graduate.jpg) He also recently released a book **"How to Dominate Any Market - Turbocharging Your Digital Marketing and Sales Results",** which is available on [ Amazon.](https://www.amazon.com/Dominate-Turbocharging-Digital-Marketing-Results/dp/1728357950/ref=sr_1_1?dchild=1&qid=1589182458&refinements=p_27%3ALonnie+D.+Ayers&s=books&sr=1-1&text=Lonnie+D.+Ayers)**** [View All Articles by Lonnie D. Ayers, PMP](https://www.sapbwconsulting.com/blog/author/lonnie-d-ayers-pmp) ## The SAP Blog Subscribe to our blog and receive SAP BW Updates, demand generation, inbound marketing, sales enablement, technology and revenue generation insights and ideas delivered right to your email. [mailto:someone@yoursite.com](mailto:someone@yoursite.com) ![SAP](https://googleads.g.doubleclick.net/pagead/viewthroughconversion/960101754/?value=0&guid=ON&script=0) ![](https://www.facebook.com/tr?id=199270410761059&ev=PageView&noscript=1) ```json { "@context" : "https://schema.org", "@id" : "https://www.sapbwconsulting.com/blog/alternatives-to-activity-based-costing#blogposting", "@type" : "BlogPosting", "author" : { "@id" : "/#", "@type" : "Person", "name" : "Lonnie D. 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