Post 2 - Essay Example

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According to the author of the article, activity-based costing is referred to a method in which costs are assigned to services or products on the basis of resources which they consume. Based on the article, the activity-based costing is described to have emanated as an…
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Finance and Accounting Article According to the of the article, activity-based costing is referred to a method in which costs are assigned to services or products on the basis of resources which they consume. Based on the article, the activity-based costing is described to have emanated as an improvement of the traditional accounting which advocated for indirect costs being allocated to a given activity’s direct costs (Richard, 2013). The article agrees that having activity based costing to be a blessing in finance and accounting as it helped a lot in revolutionizing some aspects of accounting (Richard, 2013).
The author argues that the traditional system of accounting was unsatisfactory when compared to activity-based costing because two activates that are able to absorb similar direct costs should not use different amounts as overhead (Richard, 2013). In addition, in as much as activity-based costing has some advantage over the traditional system, it also bears some disadvantage. First of all, in case of one producing more customized products, mostly coming up with a price based on its historic costing, it is possible that on large scale production, such a firm can undergo huge losses instead of making profits (Richard, 2013).
In conclusion, Richard emphasized in the article that in as much as activity-based accounting has some disadvantages and advantages, it is important as scholars to look it from another perspective and offer it a chance in accounting.
Richard, K. (2013, May 6). Activity Based accounting. Retrieved March 9, 2015, from Read More
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