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An activity dictionary is a list of activities associated with a venture and its related costs. These are used to aid in activity-based costing (ABC) analysis, a process in which the indirect costs of activities are determined. The activity dictionary is one of the primary sources of details needed for the performance of this analysis. It is also a tool for helping an organization to determine how to increase the cost-effectiveness of its operations
Most activity dictionaries begin with a table of contents. They tend to consist of individual chapters for each department, under which there are sometimes subcategories for the various functions. The number of subcategories can vary for each department, depending upon its function and size. For example, the administration department may have several categories, such as budget and fiscal services, while safety and risk management could have no subcategories at all.
The structure of entries in an activity dictionary can also vary widely, depending upon the needs of the company. A typical entry will define the basic structure of the activity, describe which area it serves and in many cases will also have an ABC code which can be used to correspond with the activity-based costing analysis.
In most cases an activity dictionary is essentially a detailed list. The entries in some dictionaries may also show the individual cost of each activity and the amount of money it makes. Other common details in an activity dictionary include information about cost drivers, suppliers, and customers.
An activity dictionary will also typically place each item within the structure of the organization. For example, it will indicate which department performs the activity and what function it performs in overall operations. The end result should give the reader both a detailed record of the company’s activities and an overview of operations overall.
In addition to improving financial performance, an activity dictionary can be used to boost company performance overall. Having a resource that lists every company activity can make it easier to analyze operations. Executives, managers and supervisors can use the dictionary as a guide to fine-tune operations on both a departmental or company-wide level. It can enable users to pinpoint excessive, inefficient, or otherwise counterproductive activities with more ease.
The activity dictionary is usually the primary reference tool for activity-based costing (ABC). This accounting method is used to ensure that each activity of the organization is cost effective, efficient, and necessary. For the most part, the method is used in manufacturing, where many activities are easily quantifiable.