Quantum Costing is a costing methodology 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. 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
By following these steps, businesses can implement throughput accounting and leverage SAP BW to gain valuable insights into their operations, constraints, and overall profitability.
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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.
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