Download file to see previous pages...
Conventional costing methods have caused problems in their implementation in most companies. This is because of the constant change in technological advancement which requires the use of modern methods of costing. The use of the ABC system creates difficulties in the separation and allocation of some overhead costs on a product unit. For instance, the Chief Executive Officer’s salary does not provide the management with the appropriate reports on costs. The ABC method allocates business cost on a proportionate basis to products or based on assumptions (Lawrence, 2004). This makes inaccurate reports on costs to be generated to the management. Some of the traditional methods of costing ensure accuracy of information which can lead to a competitive advantage. ABC is a costly method as compared to the traditional methods, but it is the most efficient.
In planning implementation of ABC method, it is important to identify key purposes of the information that the method will provide. A well designed ABC method can form the basis of improved budgeting and capacity of resource planning (Lawrence, 2004). Organizations need to understand their cost structures and have a cost management system that supports the understanding. Effective management of both ABC and the conventional methods may have greater profitability to the
...Download file to see next pagesRead More
This article is based on the research conducted about the relevance of activity based costing method and its benefits. However the article overlooks some of the important disadvantages of this costing system. In their research, employees at all levels were considered as respondents. Respondents of this research included executives, senior managers, directors, analysts, managers and other designations.
1. Activity Based Costing (ABC) is the perfect cure for the problem of overhead allocation within organisations. Critically evaluate this statement.
In general, activity based costing (ABC) has been largely described as an alternative method of allocating overhead costs based on logic rather than arbitrarily imputing cost entirely to resulting production output.
This research aims to evaluate and present activity-based costing using an example of Starbucks Company. The opening of the report consists of the application to the company; tradition costing system; a comparison of activity based costing and tradition based system and profitability analysis.
The main objective of this type of system is proper identification of all cost categories and using basing decisions on this information. Most organizations that use ABC systems have two costing systems – the official costing system that is used for preparing external financial reports
Based on the activity based costing (ABC) method, the company should increase the number of department stores, as part of its expansion strategy (Chakraborty, 2004). This is because, unlike the direct simple costing method, the activity based costing (ABC) has a higher level of accuracy.
Activity Based Costing (ABC) is a common procedure normally most of the organizations adopted to determine the price of their products or services. Both indirect and direct costs of manufacturing will be considered while calculating the unit price. This method proved to be an effective way to determine the true cost of a product or service.
Accountants have always paid close attention to costs, since this variable provides a basis that is utilized throughout the entire accounting information system. In a manufacturing firm labor and materials have always been cost
In the case study presented, the activities for the division include manufacturing of the products using similar, expensive and complex molding machines, with each machine producing three product lines.
Conversely, the traditional method of costing allocates cost at an average rate to all product-based products. The traditional method brings together any price that are indirect in the production and equally implements the costs across the board through employing one applicable cost driver, for instance, the machine hours.
1 Pages(250 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Activity Based Costing for FREE!