A document describing and identifying the different activities within a business—a unique reference source for activity-based management and activity-based costing procedures.
How an Activity Dictionary Works
The activity dictionary is essential for those dealing with activity management. The document provides a broad range of information, including:
- identification details and name of the business process
- activity description
- associated tasks
- generated outputs
- cost per input
- volume of output
- cost drivers
- non-value and value-added flags
The activity dictionary also contains a complete listing of activities in the organization's costing system and a precise definition of each activity, helping managers determine the associated costs. Moreover, you'll find standard details about operations, cost drivers, customers, and suppliers. The activity dictionary often features an ABC code which companies can use to compare tables with the activity-based costing analysis. It is a handy, detailed list.
Depending on a company's needs, the activity dictionary's entry structure varies; the document is a comprehensive list of activities relating to specific ventures and their related costs. Once a manager determines this, he can use the information to analyze the activity-based costing (ABC) comprehensively. Such a process involves determining the indirect costs relating to a specific venture.
Real-World Example of Activity Dictionary
James is the CEO of Elegant Accounting Agency—a privately-owned company in Las Vegas, Nevada. The CEO started using the activity dictionary a few years ago to improve his company's operations. James has discovered this tool always helps him keep tabs on each department's business. It also lets him calculate each department's profit margins and points out its liability areas.
To use this tool effectively, James keeps a detailed record that lists every department's activity. In addition, James finds the dictionary's unique fiscal and budget service features as a helpful mechanism. He recognizes the activity dictionary as a helpful administrative service that enables him to keep tabs on his company's financial health.
Over the years, James knows he's been able to determine the cost and cost-effectiveness of the various areas of his business, thanks to the activity dictionary. Interestingly, James recently did away with a specific sub-division of the company- the corporate auditing division. The activity dictionary's self-tracking process helped him determine the department had slowly turned into a loss-making redundancy). The CEO's quick action resulted in a dramatic turn-around for the company's fortunes.
Significance of Activity Dictionary
The activity dictionary is helpful because it places each item within the organization's structure in its rightful place. The document identifies departments that perform various activities and highlights their role in the company's operations. Company executives who use this tool can access a detailed record of their company operations. They have a valuable overview of their company's operations. This works to boost the company's current prospects. Others use the dictionary as the primary reference for activity-based costing processes; they know it's an effective accounting method, ensuring each activity is necessary and efficient.
Most managers recognize the activity dictionary as an invaluable tool that can dramatically boost a company's financial performance. Countless supervisors, managers, and executives routinely use the activity dictionary as a guide to help them fine-tune departmental and company operations. Overall, the activity dictionary helps managers discover excessive, inefficient, or counterproductive areas of operation that run down a business.