Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
How activity based costing works
How activity based costing works
Explain the need for emergence of activity based costing
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: How activity based costing works
The activity-based cost model (ABC) is kind of method that calculate company’s cost by allocate different activities and verify each cost pools of company. In recent years, ABC model has be used largely by many organisations, some managers believe that ABC model can bring more benefit rather than traditional cost and provide better support for managing organisation. However, some people doubt that ABC model also has limitation and cost to company, and it may not suitable for all types of organisation.
1.1 The benefit of ABC model
According to Swenson (1995), activity-based cost model has been accepted by more and more manufacture organisation and they provide many positive feedback about ABC model. In change of satisfaction, almost all respondents
…show more content…
According to research by Tom Kennedy (2001), some stock performance of ABC firms is not manifest itself immediately, but take a period of time. This may because compare with other method, the implementation of ABC model is complex and time consuming. Compare with other non-ABC firms, the stock performance of ABC firm is weak, so not every firms will accept ABC model as the cost method for their company. For cost pools of ABC models, even company can create an initial model, the update of cost pools also could cause Misinterpretation of Data and it will bring extra cost of costing management, it’s also possible that some activity-based costs may be irrelevant in certain decision-making scenarios, in the end the ABC models are often not maintained and their cost estimates soon become obsolete. For those company that implement ABC model, they also have to concern that employees rarely devote 100% time on producing and manufacturing, ABC model may fail to account these parts just by activities and is may lead to cost leaks. In conclusion, not every company are suitable for ABC model, and even ABC firms also can be impacted my ABC model and cause extra costs (Velmurugan,
The WACC is basically computed by the sum of multiplying the costs per component to its respective proportional weight (how much that company uses a certain cost of capital) [See Appendix 1]. As financial management is focused on the maximization of the stock price, an optimal structure of costs based on these three factors is needed.
The estimates of cost of capital for equity 6.14% are making by using the capital asset pricing model (CAPM) to generate forecast of DDM and RIM. This method is defined by the sum of risk free rate plus beta that multiplied with a risk premium. Particularly, the beta, which is a quantitative measure of the volatility of company stock relative to the unstable of the overall market, found in JB HI-FI case at 0.56 (JB HI-FI financial statement 2016). It
The BCG matrix is also a matrix that is used for the purpose of strategy formulation of a firm, but it is a four cell matrix. It is used to measure the position of a firm in relation to its relative market share as well as its market growth. In case of these two being high a firm is classified as a star. In case of these being low they are classified as dogs. In case of only a high market growth it is rated as a cash cow and in case of only a high market share it is rated as a question mark. Based on this t...
Los de Abajo, the realistic portrayal of those involved in the Mexican Revolution? After only reaching a small audience with serialised publications of Los de Abajo, the importance of the novel and author, Mariano Azuela, only became apparent in the 1920’s. The rugged nature of the narrative in the novel proved to be something different to the norm of the romanticised literature that had been published regarding the revolution. A testimonial view provided by an eyewitness account offered ‘mexicanidad’ and a realistic snapshot of life in that era. Azuela writes all from memory and draws from his real life witnessing of the Mexican revolution, thus all the characters are somewhat an indication to the people that were involved. Therefore it is
The Trio Program here at Elgin Community College is to help students with disadvantaged backgrounds, such as documented disabilities (learning or physical), financial problems (low-income family/household) and those who are a 1st generation college student (parent(s)/legal guardian(s) didn’t graduate from a 4-year college). The Trio program provides 3 different programs, which is: (1) The Trio Student Services (SSS), (2) The Trio Student Services English as a second language (SSS/ESL), and (3) The Trio Upward Bound (UB).
The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the growth of the company. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way:
Answer: Monte Carlo simulation is a technique that allows people to run simulation many times to obtain numerical results or distribution of an unknown probabilistic entity. It was invented by Stanislaw Ulam in the late 1940s at the Los Alamos National Laboratory and was named after the Monte Carlo Casino where Ulam’s uncle often gambled [1].
When discussing the cost of equity capital, or the rate of return required by investors for their share expenses, there are three main models widely used for analyzation. These models are the dividend growth model, which operates on the variable of growth and future trends, the capital asset pricing model (CAPM), which operates on the premise that higher returns are a result of higher risk, and the arbitrage pricing theory (APT), which has a more flexible set of criteria than CAPM and takes advantage of mispriced securities
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
For the fishermen when a market becomes larger, a price is more stable. For instance, if there is a dip of price in the local market but there is a good demand for fish, the really low dips in the prices will disappear. And then gradually over time, the prices also grow to a higher average. The benefit for the fishermen is also to get up to data market information. They can obtain information on how the sales were the day before on the auction, know what happened at all the other auctions in Europe, and have an up-to-date market information on statistics and market trends. With the PEFA system they have a very good view on every day’s movements in the European fish market. Therefore, they have a much better commercialization for their product.
Finally, Welch (2008) established from his research that 75% of finance academics recommend using the CAPM for commercial capital budgeting purposes, 10% commend the Fama French model and only 5% recommend an APT model. Therefore, Sharpe and Lintner’s CAPM is a beneficial framework.
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.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Activity-Based Costing ( ABC ) Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community.