Activity Based Costing Case Study

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The origins of Activity Based Costing (ABC ) are in the United States of America is result of lack of pertinence and relevancy, this leads to mutual subsidy between products and their costs (indirect costs). In 1963 Peter Drucker draw the characteristic of traditional cost calculation methods that is systems were unable to adapt to significant changes in business operation and lead to poor performance . Thus, the emergence and development of ABC is more or less also attributed to the failures of traditional costing systems. (Baker J ,1998) .
In the 1970s due to limitations in traditional costing systems, Greater competition and further inaccuracies in costing products effectively encouraged businesses to seek out alternative methods to enabling them accurate and causal cost allocation , at the same time Activity-Based Costing (ABC) method came about, being quickly adopted by enterprises of many and various types and It is also ABC considered …show more content…

(1976) showed the possible use of traditional costing systems (job-order costing and process costing) in the hospitality services industry. While that Kunst and Lemmink pointed out the difficulties of tracing costs to activities and activities to products and customers in restaurants by 1995, which is the realm of ABC methods. Shortly thereafter out the need for incorporating ABC methods into customer profitability analysis , this suggestion followed by Noone and Griffin in 1997 who propose that ABC is the most effective and accurate costing method for customer profitability analysis (CPA) in a hotel environment (identified categories of customers, such as high profit contributors, marginal profit contributors, and loss makers). Noone and Griffin support using ABC as a basis that identifies the type of task rather than the product—for instance, sales activities rather than sales salaries, telephone costs, and so on. And also overhead cost should be identified and then allocated to the respective market

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