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Impact of traditional and ABC cost allocation on decision making - Research Paper Example

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Cost allocation is an essential tool for the management which is simply defined as a process of identifying, aggregating, and costs assigning to cost objects. A cost object is any activity or item for which you want to measure costs separately. Cost allocation provides important…
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Impact of traditional and ABC cost allocation on decision making
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Download file to see previous pages The cost of direct materials and direct labors are easy to trace to products. However, allocating indirect overhead costs are very complicated and not easily traced to products. Such indirect costs require predetermined overhead rates to be allocated. In this study, I will focus on the impact of traditional and activity-based cost allocations on decision makers.
Decision-making is a function preceded by a series of information gathering and analysis. The business environment is becoming more dynamic and volatile not to mention the ever increasing competition. Companies operate under the famous accounting concept (the going concern), which implies that the business’ operations should continue indefinitely. However, the life span of a business and more importantly, the performance are heavily influenced by the decisions made. Therefore, decision-making is a critical function in the organization. The managerial accounting is the organization’s department charged with the responsibility of providing the necessary information for decision-making. Consequently, the management accountant’s role is significant in the organization (Kaye, 1988; pp. 1-5).
Managerial accounting includes the following activities: data distinguishing proof, measuring, information examination, and correspondence. The transmission of the data is important to upgrade educated choice making to encourage the accomplishment of the associations targets (Sawsan and Mostafa, 2012; pp. 1-5). It is the commitment of the administration bookkeeper to guarantee the usage of the procedure specified previously. The role of the administration bookkeeping and the administration bookkeeper are to plan, organize, control, direct, communicate and motivate. To start with, Planning is the essential capacity of the administration by a method for which the supervisors choose the objectives to be fulfilled and the course of activities to convey the objectives (Sawsan and Mostafa, 2012; ...Download file to see next pagesRead More
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