ABC recognizes the fact that you cannot manage costs, you can only manage what is being

done (activity) then cost will change as a result (Emblemsvag, 2000). Activity-based costing is
an approach to accounting that assigns a value to each type of expense or cost that occurs in
an organization. It is also known as time-based costing, cost per transaction, and activity-based
costing.

The application of ABC involves certain stages. The first stage is the identification of the various
activities of the organization where cost can be related. These cost that are related to the
various activities are known as “cost-pools”. Secondly, the determination of the factors that
influence cost in each activity cost center. Such factors are known as “cost-drivers”. Cost-driver
rate = activity cost-pool activity cost-driver Finally, each job should be charged the cost of
activity cost center on the basis of the job usage of the activity carried out by the cost center.
That is, apply the activity cost-driver rate to cost unit to get the activity based product. It is given
as: Activity-based product = Cost-driver rate x activity.

In universities, activity-based costing can take many forms. Some universities may use ABC to
determine how much money to spend on employee benefits or salary increases. Other
universities may use ABC to determine how much money should be spent on purchasing
supplies like furniture or computers.

Activity-based costing can also be used by universities to track how much money they are
spending on various projects. This can help them make better decisions about where their
resources should go within an organization or department

Activity-based costing is often used in universities because it allows for a better understanding
of the costs associated with running an institution. By tracking how much time faculty spend on
teaching, for example, it's possible to determine which courses are most popular and therefore
have the highest demand. This information could then be used to help determine which
professors should be hired or funded, so that they can offer more classes and meet higher
demand.

In order to fully reap the rewards of ABC, a university must first understand how it works and
how to use it effectively. It is not enough to just implement a system; you must understand what
the system does and how it does it. You should know exactly where your costs are coming from
and where those costs will go in the future.

Firstly, the activities in the university are defined, namely new student enrollment, teachers
teaching, student orientation, health care services, security services, maintenance, e. t. c.

Secondly, indirect costs are assigned to each activity cost pool.

Later, in the third stage allocation base for each activity cost pool is determined.

In the fourth stage, costs of the primary activities are allocated to cost objects. Then, allocate
indirect cost to different activity centers. The indirect cost which calls for division, can allocate
resource consumption to the center of every activity Cost allocation rates are calculated by
dividing total cost of each activity to the total quantity of the cost allocation base of the activity.

For example, cost allocation rate for new enrollment grades in the university are selected as cost
objects. For each grade, allocated cost of each activity is accumulated. Finally, the unit cost of
the student is computed by dividing the total cost of the grades to the total number of students in
each grade.

University administration cost center: University administration is a very complicated field.

This is where activity-based costing (ABC) comes into play. ABC is an accounting system that
helps companies track their costs by assigning them to specific activities, rather than individual
items or units of production. This means that instead of charging for every single purchase made
by an employee, you can charge only for the activities they are involved in during their day-to-
day work.

For example, let's say we're running a university cost centre where students can take classes on
everything from English to history to math. You have ten employees who work there: four
teachers, two administrative assistants (who help with schedules), and six tutors (people who
teach English).

We would use ABC to figure out how much money each employee costs per hour worked.

First we would need to determine what kind of work each person does at the university cos t
center: teaching, administrative assistant, tutor or something else? Then compare that

ABC supplies insight into the costs associated with running a university. This includes things
like labor costs, overhead costs, and even depreciation on equipment. For example, if a
university has 100 students enrolled and they spend $100 on each student's tuition, then they
would have to include that expense in their budget. But if they only saw 10 students enroll each
semester and only spent $20 per student's tuition, then they would have to include an additional
$80 of expenses in their budget because it's not just about paying for the tuition itself; there are
other expenses associated with running a school as well.

University Facilities Cost center: The University of Lagos has a number of facilities that are
used by students and faculty. These include classrooms, libraries, and labs. The cost center for all
of these facilities is say, #2 billion.

The number of hours spent by each user in each facility is tracked in a spreadsheet:

The total time for each user to use the facilities is calculated as follows:
-The number of hours per day that users spend at their facility (from their timecard) divided by
the number of days in a year (from the calendar).

-The result is multiplied by 100 to convert it into years per person per day.

-Finally, the total number of years that users spend at their facility is divided by the number of
hours in a week.

ABC method provides data on cost factors, activities, resources, performance

measurement, profitability,and on other fields that directly affect the profitability of the
organization

The application of Activity-Based Costing can eradicate useless activities, increase the entire
value chain and directly reflect the input-output ratio of the investment.