Introduction
Activity Based Costing (ABC) addresses internal operating concerns and is an augmentation to the traditional cost management system. It is not a replacement for traditional accounting, but makes use of the source documents provided from standard job costing systems. ABC looks at a business unit’s events as cost drivers and assigns all company resources and accumulated costs against those events in a time-phased sequence. Revenue tracking provides management with a different point of view on the profitability of products and services, providing insight into pricing. Middle management and technical performing organizations are involved in the line item reporting provided within the ABC system, enabling management to achieve more responsibility of reported information throughout all levels of the organization. ABC is being ostensible by the accounting industry as the wave of the future and is gaining broad acceptance within larger organizations. This system is intended to provide performing entities and management alike.
History of ABC
Activity Based Costing (ABC) is an approach to costing that considers the resources consumed by activities in order to create and deliver a product or service. It evolved in the mid-1980s to improve the allocation of manufacturing overhead costs to products, but it soon became apparent that activity-based costing systems could be expanded to include non-manufacturing costs (Langfield-Smith, Thorne & Hilton, 2004).
Review of ABC
Whereas the underlying assumption of a conventional costing system is simply that products cause costs, an activity based costing system assumes that cost objects (e.g. juice) creates the demand for activities (e.g. manufacturing), which in turn causes resources to be consumed (e.g. manufacturing time, outlet space, etc.) and causes costs. Cost objects are the reason for performing activities, and activities are the processes or procedures that cause work and create costs.
ABC analyses costs from the perception of the how much a particular activity costs, and the amount of resources consumed by the end product of the activity. Using activity based costing differs from traditional cost accounting in that the focus is on the activities that are required to produce an end product, rather than assuming that the volume of the end product is the only driver of costs.
A cost driver is ...
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Problems with ABC
While activity-based costing may yield more detailed product cost estimates, it must pass a cost benefit test before being implemented. Activity-based costing requires a much more detailed breakdown of costs into activities that cause costs. This can be a complex task involving the teamwork of management, production, accounting, purchasing, marketing and many others. A company should implement ABC only if it thinks the benefit from improved management decisions will outweigh the cost of establishing and maintaining the new cost system. Furthermore, there might be underestimation of the task of collecting activity driver data, and the implementation of this system may be considered a financial management which might cause insufficient commitment from operational managers.
We should use activity-based costing if we find the benefits from the new system exceed its costs.
REFERENCE
1. Innes, J & Mitchell, F. (1991), “Activity Based Cost Management�, CIMA
2. Smith, K.L., Thorne, H., Hilton, R.W., (2004), “Management Accounting – an Australian perspective�, 3rd edition, McGraw Hill
The activity cost driver is a factor that affects expenses of a certain operation by driving the prices of a certain activity. Appropriate cost drivers for analyzing the cost structure would include the portion of the general facility costs for the space provided from the library for donation activities and most importantly radio frequency identification (RFID) inventory tags. There is also the computerized system for the library’s catalogue system and the salaries of workers to keep up with the growing number of books. To justify my answer think about the RFID that is placed on each book so that it can be tracked to know whether or not it has been checked out or is still available. This alone drives up the cost of each book. Relevant range also becomes important to mention because it is the specific activity level that has a minimum and maximum boundary for everything to flow properly and keep costs the same. The appropriate workload...
In the “Happiest Laboring Class”, the first slaveholder explains that a slave should be obedient at all times under all circumstances. Harriet displays this submissive attitude to both Mr. Flint and even her Aunt Martha. This inferior attitude holds her back from attaining her end goal, which is to have her own home with her children. Eventually she breaks free from this attitude when she runs away from Mr. Flint, and leaves her Aunt Martha to make it on her way to personal
With the demands of keeping up with competitors and customers these conditions will help them to stay on top of the economy. Even though ABC cost system is a managerial cost tool, e-commerce companies can use EAD (expense activity dependence) and APD (activity product dependence) matrix. These are two tools associated with ABC costing will allow Groupon to use the data provided from the company to trace overhead expenses such as: web design and maintenance, order processing, product marketing, telephone support, product handling and product shipping. The main activities identified to trace Groupon’s overhead will be determined by the level of accuracy and reliability
Just think, what good is a moral/ ethical theory if you can just ignore some parts of the theory by saying it doesn’t apply to me or forget about it. Overriding is explain in that nothing should top morality. Morality is then therefore a law unto itself. These ideas will be used to question and explain if Utilitarianism is an ideal moral theory. Utilitarianism emphasize two big ideas, the greatest happiness principle and that each action should be judge to be moral by their consequences. The Greatest Happiness Principle states that, the action that produces the greatest happiness for everyone is the best course of action to be taken. So this paper will evacuate how The Greatest Happiness Principle of Utilitarianism can fits in the areas of Scheffler ideals of Pervasiveness, Stringency/ demanding and overriding. Explain why even if Utilitarianism fits the aspirations description of what a true moral theory is many would not consider this the way to live. While the Greatest Happiness Theory would considered to be the ideal feature of an ethical it fail to predict the future, will is why I argued on the base on Scheffler theory
A cost behavior pattern is the capacity to comprehend how costs change when there is a change in an organization's level of activity. In other words, to successfully predict how organizations’ future profit will be determined, organizations have to know the behavior of cost which will take place as a result of changes in activities such as sales volume (Averkamp, 2017). Cost behavior pattern, similarly refers to the way different types of production costs change when there is a change in the level of production. Understandably, some costs varied proportionately with the changes in the level of activity and these costs are referred to as variable costs. Other costs are often not affected irrespective of changes
This, in order to identify what are the true costs of each customer and each order, enables the company to fully understand its cost structure thereby providing the base for better business choices and higher profitability. These are very sensible goals indeed. Even though the company is profitable, implementing a new, activity-based cost accounting system will allow the company to improve its margins and become even more focused and competitive in the future. 2.2. What is the difference between a.... ...
"College Accounting Coach." Process Costing-Definitions And Features(Part1) « Process Costing « Cost Accounting «. Feb. 2007. Web
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
There are two main types of cost accounting systems, job costing and process costing. In job costing, each job is tracked separately. For example, a company that install roofs can keep track of each cost separately. They can easily track labor by tracking the total amount of human hours spent of the job and what each person was paid. Materials can easily be tracked by tracking the total costs of supplies needed to complete the job. For job costing the total costs of each job can be easily tracked. Some examples of professions that use job costing are carpenters, painters, and computer repair. In process costing, a large number of the same or very similar products are produced in large numbers - examples include
Cost allocation is the process of identifying, aggregating, and assigning of cost to various separate activities. There is no overly precise method of charging cost to objects, hence resulting to approximate methods being used to do so. Amongst the approximation basis used includes square footage, headcount, cost of assets employed, and electricity usage amongst others. The main aim of cost allocation is to spread cost in the fairest possible method and also to impact the behavior pattern of the cost.
Cost control and management. The study also identifies several other advantages of using the ABC
This article demonstrates why adopting ABC is important by documenting the potential of ABC in supporting contemporary managerial decision making. Introduction Everything happens faster in business today. Even new management tools (some say "fads") follow a meteoric path. For example, the ink on new articles describing activity-based costing (ABC) was hardly dry before consulting firms had integrated it into their slick brochures and presentations.
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
Cost accounting system has two types, job order costing, and process cost system. These two cost systems are very different, almost every company uses order costing or process costing. Starbucks, is a coffee shop where citizens congregate to drink there morning coffee, study, and or socialize. Starbucks is one of the oldest and largest privately held specialty coffee retailer in the United States. (Starbucks) Their passion is to discover the flavors you love and always bring it home, delivering the look, taste and aroma of the world’s best coffee and teas. Job order costing is a very easy way in order to help Starbucks managers to know how much profit their company (Starbucks) made.
Activity-based costing is used as a supplement of traditional cost accounting in a company to support manager in internal decision making. It focus on assigning the indirect cost to direct costs in order to get a more accurate cost on products. Activity-based costing uses several cost pools instead of one in traditional cost accounting. The system is easy to implement and it provides many benefits, it allows the company to respond to inefficiency by reallocating resources to more profitable activity from areas that absorb too many resources. It also allows the company to respond to manufacturing overhead cost and assumes a more accurate selling price on products in order to make more profits. Company that do not have internal expertise to conduct activity-based costing analysis may think to hire one or ask company that provides this kind of services for help.