Activity-Based Costing - Essay Example

Activity -Based Costing March 19, Accounting involves cost accumulation. The research delves on activity-based costing system. The research delves on traditional cost gathering. Management and accountants must implement the more realistic activity-based costing system. Part 2 Article 1 Overview of Journal The 2005 Hughes article ABC/ABM –Activity based costing and activity based management adds a significant literature report to the present cost accounting literature. The journal topic discusses the main points of the activity based costing. The costing method has many advantages when compared to the traditional income statement reports. The journal article shows that activity based costing enhances the decision making process. To ensure success, the article requires procedural implementation. Further, activity based costing entails using costs generated from each activity as basis for the entities’ profits. For example, the activity based costing of the machining department includes all production costs used within the machining department. Likewise, the activity based costing of the finishing department includes all production expenses used within the finishing departments. Consequently, the machining department has its own set of electricity, water, and telephone expenses. Similarly, the finishing department has its own set of electricity, water, and telephone expenses. All management officers should be well versed in the intricacies of activity –based costing. Additionally, the management officers should go the extra mile to contributing to the success of the activity based costing. With management officer’s glaring show of energetic force, the subordinates will follow suit by joining the band wagon. Second, the top managers should allow leeway in the implementation of the activity –based costing activities. Summary of journal Aims. The journal aims to discuss the importance of activity based costing procedures. The article discusses activity based costing in the realm of trouser manufacturing. The article shows management’s priorities Tests carried out. The tests were conducted among small and medium enterprises. The respondents were located within the United Kingdom business environment. Most of the enterprises engaged in the clothing business. Likewise, the other respondents came from the textile industry. The research determined the effects of changing from the traditional accounting procedures to the activity based accounting procedures. The findings. The findings showed that the use of activity based costing has many advantages. The use of the activity based costing would increase the profitability performance of the respondent companies. Findings include generating 28,200 profits. The research shows that the change to activity based costing precipitated to higher net profits. The findings also indicated that the companies should not mistake the findings. The findings warn the readers from using only the production and marketing costs when making decisions. Management should also include other factors such as marketing expenses and customer demand. The top level managers must give the lower level managers much elbow room during the unfolding of the activity based costing activities. Consequently, the middle level managers must act as effective liaison officers between the top level managers and the line and staff employees. The middle level managers should contribute inputs relating to strategies, technologies, and daily operating activities. Top level managers should offer incentives to bring out the best from every subordinate. Bringing out the best includes producing the best quality product outputs. Bringing out the best from the sales officers include generating increased revenues during one specific operating period. Top level management officers should prioritize implementation of key operating activities to bring out higher revenues. Critical Assessment of Journal Meeting journal aims There is nothing wrong with the method used to generate the findings. The activity-based journal correctly uses the appropriate research method in coming up with its findings. The company uses the cost data in generating its findings and conclusions. The gathered data included the number of machine workers producing the trousers and other clothing products. The gathered factors included the relationship between the customers’ demand for the company’s clothing products and the quantity of clothing products produced/manufactured. The journal article correctly includes both the favourable and unfavourable outcomes. The favourable outcomes include the activity- based cost’s production of higher net profits. The unfavourable effects include creating a false impression that costing is the only factory needed to make better decisions. The research article shows the use of key activities as part of the decision making activities. The key activities include the costs of each production activity, value assigned to each activity. Specifically, the trouser production activity generated an activity-based costing profit increases. The increases ranged £5,000 to £28,500. By generating actual findings, the article rightfully convinces the readers to accept the conclusions. The quantity of trousers sold, the profit generated, and other expense data prove that the findings are believable. Article 2 Overview of Journal Article The 2001Tollington & Wachter article ABC/TA for Internet Retail Shopping adds a significant literature report to the current literature. The article brings to mind activity based costing has many advantages when compared to the traditional income statement reports. The journal article shows that activity based costing enhances the decision making process. The journal article contains several assumptions. One of the assumptions is that all activities use up the company’s scarce resources. Another assumption is that there is a direct relationship between services and products offered to the customers. Example For example, the manufacturing department converts wood, nail, paint, and other materials into one complete product, chair. The manufacturing department sells the chair to the customers. Without the manufacturing department, the company cannot sell any chair or product. Without the product, chair, the company cannot generate a chair net profit. The paper also delves on producing products that meet the different demands of the company’s current and future customers. Another concept is that the activity based costing focuses on use of scarce company resources. The company uses the number of hours used to produce the entire product. The company use the quantity of materials used in producing one final product. Summary of journal article The aims of the journal (article) The aim of the article is showing the importance of activity-based costing in enhancing the internet retail shopping environment. The article shows how activity-based costing system can be used to maximize the conversion of scarce raw materials and other inputs to generate company’s goals and objectives. Tests carried out There were test carried out to show the many advantages of activity-based costing system. One of tests is determining the weakest link in the entire supply chain process. By locating the weakest link, the company is able to resolve the weakest link problems. Resolving the weakest link problem ensures all activities are on the right track to accomplishing the company’s preset goals and objectives. Further, another test is to determine the presence of bottlenecks during the entire production and marketing process. The bottlenecks reduce the chances of meeting established targets on time. The tests will help refocus the company’s energies to preventing future bottlenecks and favourably resolving current bottlenecks. Resolving the bottlenecks include the five step process. The process includes identifying the bottlenecks, identifying the specific scenario or process that triggers the bottleneck, and returning to resolve any future recurring bottlenecks. The tests include determining the effect of changes in the production process on each cost pool factor. For example, the company wants to determine if adding more employees will reduce the time needed to meet established production benchmarks. The findings The findings indicate the reasons for increasing or decreasing production expenses. Activity-based costing system shows how the scarce resources are used in the fabrication of the completed products and services. The findings indicate possible ways of reducing avoidable production costs to allowable levels. The research proves that there are several advantages of activity-based costing system over the traditional costing method taught in basic accounting textbooks. Critical Assessment The journal rightfully contains several activity based costing concepts. The concept shows that the costs of each activity contribute to increasing or decreasing the company’s net profits. With higher activity costs, net profit is reduced. On the other hand, lower activity costs will increase the company’s overall net profits. The article correctly states that the retail industry includes incorporating the production costs in the final product. The product costs include the labour cost. The labour cost may either be classified as indirect and fixed cost. There are situation when labour cost is direct cost. For example, the carpenter making the chair is direct labour. However, the housekeepers hired by the chair factory are classified as indirect labour. Second, the company’s capacity to generate profits is grounded on reducing bottlenecks to allowable levels. Often, bottlenecks block the smooth accomplishment of organizational goals and objectives. The article correctly states that the each part of the activity-based costing system is very important to attaining prescribed goals and objectives. The bogging down of one part of the supply chain may trigger a delay in the delivery of optimum services and goods. Lastly, the delivery of the right product costs will reduce normal company profits. Article 3 Overview of Article The 1996 Chen article Activity-based Approach to justification of Advanced Factory Management System focuses on the importance of activity-based costing system to better preparation of financial reports. The article includes the important aspect of total quality management in the preparation of realistic operations reports. The journal article includes the just in time production management concept to enhance current management decision making activities. The article delves on computer wide computer integrated manufacturing architecture to reduce avoidable production costs and expenses. The article adds additional literature to the current voluminous literature on cost production management. The article delves on the importance of controlling costs at all possible production cycle paths. The production cycle paths include the introduction of direct materials and indirect materials, labour, and other expenses. Further, the aim of cost accounting is to present a realistically objective cost gathering process. The objective cost data will ensure management makes more informed production decisions. The article shows that activity-based costing system offers better and more realistic cost of production data compared to the traditional cost gathering processes. The basic concept of activity-based costing system states that products use up activities. Thus, management must focus on controlling the activities in order to generate more effective management decisions. 2. A summary of each journal (article): The aims of the journal (article) The article aims to place importance on activity-based costing system over the traditional costing processes. The article states that Just-in-time accounting and total quality management concepts enhance the current activity-based costing system outputs. Tests carried out There were several tests conducted. The tests included the use of software and hardware to determine the effect of several cost drivers on the outcome of the activity-based costing system’s application. The tests indicated that software and hardware use improves the activity-based costing system outputs. The favourable outputs include ensuring there is a feasible overall production plan. Another favourable output is that the assigned production tasks easily contribute to the overall production goals. Likewise, the activity-based costing system ensures there is a proper routing of parts, materials and other indirect materials needed to meet production deadlines. The software guides the people to ensure all production and sales deadlines are met. The software and hardware reduce the possibilities of delays by favourably resolving all bottlenecks and other delaying obstacles. The findings The findings indicate that the cost drivers contribute to the achievement of organisational goals and objectives. The findings indicate that different products often share the same cost drivers. For example, the carpenter (labour input) shares in the production of several products. Likewise, the same production area shares in the production of two or more production outputs. For example, the company must show the costs of production used in the moulding department activities, painting department activities, finishing department activities, and quality control activities. However, boosting production outputs should not be left at the mercy of the costly software and hardware. Human intervention is needed to manage the introduction, implementation, and removal of software and hardware inputs. The human being should ensure that the software does not bog down production. Critical Assessment The journal rightfully contains many activity based costing concepts. The concept shows that the costs of each activity contribute to the organisation’s profits. With higher activity costs, the company’s profits are lessened. On the other hand, the organization’s reduced production activity costs will automatically enlarge the organization’s overall net profits. Further, the article correctly states just in time concept perfectly fits in the activity-based costing system implementation. Likewise the introduction of total quality management concepts improves the output of the activity-based costing system factors. Similarly, the product costs include the labour costs, materials costs, and other production costs. Further the article places importance on reducing bottlenecks to achieving the smooth accomplishment of organizational targets. The article correctly states that use of software and hardware reduces the time needed to produce the required products. Reducing production time entails resolving all obstacles that bog down the smooth production process. Lastly, the use of the right software and hardware inputs will help people produce more produces within the allotted time period. Consequently, company profits are increased. To ensure successful implementation of the activity-based costing system, the organization should focus on managing activities. By managing activities, the corresponding production costs are reduced to allowable levels. Article 4 Overview: The 2005 Cinquini & Mitchel article Management Accounting: Lessons from the Activity-based costing/management Experience states that activity-based costing system is very important to enhancing the decision making process. The article contributes to the current cost accounting literature. The literature closes any gaps in the current management accounting thinking. The article focuses on gathering several evidences to prove that activity-based costing will enhance the decision making process. The research includes gathering information on the effect of management support, staff competence, and links to performance evaluation. Further, the research included secondary research resources. The secondary research resources included similar activity-base costing outputs. Likewise, management’s all out support to help employees gain the capacities need to implement a viable activity-base costing plan. Likewise, management must help the subordinates to join linkages with third parties who can train the employees on how to improve their current activity-base costing tasks. Likewise perks and other benefits prod the employees to excel in their current activity-base costing responsibilities. Giving awards, citations, and rewards to excelling employees will persuade the employees to give their best to each assigned responsibility. Granting promotions to deservingly consistent overachievers will encourage the employees to give their 200 percent to each work assignment. Summary of journal The aims of the journal (article) The article aims to persuade the readers to accept the many advantages of activity-based costing system. The journal includes researches on related costing system outputs. Tests carried out The researchers conducted several tests. The tests included identifying the factors underlying activity-based costing system. The factors included both independent and dependent variables. The research gathered circumstantial evidence. The research evidences included those gathered from top management, middle management, and the line and staff personnel. The success of the activity-based costing system was grounded on the training of the line and staff employees. The research included such activities as offering rewards to employees having superior job performances. The findings The findings proved that activity-based costing system is a very effective means of increasing the company’s net profits. However, different persons have their own version of what is the favourable a costing system. Success can also crop up under different degrees or levels. The findings show that the direction and level of importance of the costing factors affect the company’s profitability performance. The effective activity-based costing system process contributed surplus financial benefits that far outweigh the costs and expenses of implementing the activity-based costing system. Likewise, the findings indicate that the existence of financial benefits had been favourably correlated to the range of behavioural and organizational factors. The factors were associated with the participants’ perceptions of the activity-based costing system. The findings also indicated that the average response of the research respondents indicated a moderate rating for the new costing system, activity-based costing system. Likewise, the researchers observed that the implementation of the activity-based costing system generated more favourable financial operation reports than reports using the traditional cost gathering procedures. Success is grounded on the personal biases of the researchers or respondents. Critical Assessment The journal rightfully contains several researches focusing on the popularity and viability of activity based costing concepts. The research correctly indicates that the costs of each activity contribute to the organisation’s profits. The higher activity costs lower the company’s net profit outputs. However, the entity’s lower production activity expenses increase the organization’s overall net profits. Further, the article correctly states that the activity-based costing system perfectly fits in the average entity’s strategic planning process. Consequently, the journal article clearly shows that the implementation of activity-based costing system increases the organisation’s profits. To ensure successful implementation of the activity-based costing system, the must not stop managing and controlling each production and marketing activity. The author perfectly uses the most effective research methodology. By interviewing management and other individuals from different companies, the author can convincingly defend the hypothesis presented to the school. The author correctly gathers related information from several companies. Further, the findings indicate that same findings will come100 percent in all future similar researches. Different research respondents will use their diverse cultures when they come up with new research findings. Consequently, the findings of one group may not automatically be the same as the findings of another respondent group. Article 5 Overview The 2005 Cohen et al. article activity-based costing system: adopters, supports, deniers and unawares is another significant contribution to the enhancement of the decision making process. The article focuses on the different views on activity-base costing. The article states that some quarters prefer activity-base costing. On the other hand, other sectors prefer the traditional cost gathering procedures. The research effectively contributes to the current cost accounting literature. The literature closes clearly reduces any gaps in the current management accounting thinking. The article similarly pertains to gathering evidences that will prove activity-base costing is a more popular costing procedure than the prior historical costing method. Summary of article The aims of the journal (article) The paper aims to convince the readers that many United Kingdom companies prefer to implement the activity-based costing system. The article aims to add more literature to the current cost accounting concepts. Tests carried out There were tests carried out to affirm the hypothesis of the authors. The tests included surveys of companies. The surveys determined how many companies had already implemented the activity-based costing system. The test questions included asking whether the respondents had already implemented the activity-based costing system. The findings There were glaring findings from the research. There were fewer United Kingdom companies implementing the new activity-based costing system. There was an average of 10 percent implementation of the new costing system. The researchers indicated that the implementation of the new activity-based costing system was met with significant differences. The resistance to the change was understandable. People, especially the elderly employees, prefer to work using the old fashioned work arrangements. Further, the use of the new activity-based costing system would entail training the employees to adjust to a different system. As always, changes entail hard work. The employees are trained to replace their current old fashioned accounting system with the latest accounting concept, activity-based costing system. The research would entail accumulating the costs. Likewise, the implementation of the new costing procedures normally incurred would be difficult because some quarters had met difficulties in the interpretation and recording of the related business transaction. The resistance to the activity-based costing system is due to the dissenter’s refusal to learn new things. The elderly employees prefer the old ways of doing things because they do not have to mental as well as physical capacity to learn the new accounting system. Likewise, many companies are used to the older way of recording the company’s business expenses. 3.Critical Assessment The methodology conducted on the Greece research was well done. The journal rightfully contains several researches focusing on the unpopularity and resistance to the implementation of the activity based costing concepts. The research correctly indicates that many individuals refuse to shift from the traditional costing concepts to the activity-based costing system. Further, the article correctly states that several individuals refuse to implement the new costing process. The new costing process includes training all employees on how to implement the new activity-based costing system. Often the older employees will try to resist the new work procedures. To implement a triumphant activity-based costing system, the organization should control the production process. The management officers must continue managing each activity. The author perfectly implements one of the more popular accounting concepts, activity-based costing system. Likewise, the author correctly states that different individuals have different opinions on the imposed activity-based costing system. Some line and staff employees and managers may embrace the new accounting system with open arms. However, more people choose the old fashioned cost process. However, management can use friendly means to convince the line and staff employees to comply with all management instructions, including accepting the activity-based costing system of reporting production expenses. Part 2 – Report ( As a Group) question 4, 5 ,6 ,7. 4. A comparison of two journals (articles) evidence used The 2005 Cohen et al. Journal article states activity-based costing system: Adopters, Supporters, Deniers and Unawares focuses on giving survey questions to more than 80 Greek companies. The researches submitted the survey questions to the respondents in order to determine which companies are favourable to the implementation of the activity-based costing system. The journal article focuses on the business entities located in Greece. On the other hand, the2005 Hughes article ABC/ABM –Activity based costing and activity based management adds a significant literature report to the current literature. The article focuses on using the same survey to determine whether companies are eagerly implementing the new activity-based costing system. The article focuses on research that considers the private enterprises’ implementation of the activity-based costing system. The article affirms that most companies are implementing the new costing system. The two journal articles complement each other. The two articles espouse the importance of implementing the activity-based costing system. The two articles espouse that activity-based costing system will focus on the activities management. Consequently, managers can focus on reducing avoidable production costs and expenses. By focusing on the activities, the managers can concentrate on analyzing the cost factors of each store or production activities. Both journal articles espouse that activity based costing focuses on making management decisions that are based on the activities of each product. Moreover, the factor that links the two journals is the use of activity-based system of cost allocation. Both journals place importance on the implementation of the activity-based costing system. Both journal articles a world fun to the profitable business venture. When the activity-based costing system is implemented, the focus of management is elimination of redundant, irrelevant and avoidable activity expenses. The two journals discourage the managers and other accounting officers from continuing the prior historic-based accounting system. 5. A discussion of any issues arising The research should focus on ways to reduce resistance to the implementation of activity-based costing system. The research articles show that some quarters and even companies prefer to implement the traditional form of costing. The traditional costing uses the matching cost principle. The principle states that all costs are deducted from all revenues in order to arrive at the gross profit. Additionally, all expenses shall be deducted from the gross profit. The findings of the related research will help managers of different companies come up with a viable plan that will reduce the current resistance to the cost accounting principle change. The findings of the research will show the most common reasons or factors that prevent people from embracing the new cost accounting process with open arms. The research will also indicate whether management may have the last option to implement. The last option may be to retrench employees who refuse to implement the activity-based costing system. When such retrenchment happens, the resisting employees are paid to leave the company so that the company can hire new employees. The new employees will be more than eager to apply the activity-based costing system on their first day of work. 6. A record of interactions with staff (see appendix E) The implementation of the new activity-based costing system will enhance the current decision making activities. The new costing system will focus on managing the activities. The activities may include painting activities, washing activities, finishing activities, and other activities. The manager can make decisions using the activity costs as basis. With the activity costs on hand, the managers can reduce activities that have high activity costs. The manager can also increase the production of certain products when the activity cost is the lowest among several activity expenses and costs. Further, activity based costing entails using costs that are produced during the production of one part of the entire production process. For example, the activity based costing of the washing department includes all production costs used within the same washing department. The activity based costing of the quality control department includes all quality control expenses used within the same quality control departments. Consequently, the folding department has its own set of electricity, water, and telephone expenses. 7. Conclusion Based on the above discussion, the role of the management accountant in business is to prepare relevant accounting information. The relevant accounting information includes the activity-based costing system reports. The subject area of the research clearly shows that activity-based costing system has a strong impact on the management accountant’s roles as presenters of a very important tool in harnessing the activity costs as significant factors for arriving at viable management decisions. The academic research/investigation into the subject area clearly shows that managers and accountants should move with the times. With the fast paced information technology without the grasp of both managers and accountants, the activity-based costing system should be a top costing process priority. This student researcher affirms that the implementation of the activity-based costing system agrees with the industry’s desire to have more realistic tool for increasing net profits. Based on my opinion, the activity-based costing system should be immediately implemented. The group discussion loudly and convincingly dictates that the many benefits of activity-based costing system shall be reaped by replacing the current historical cost accumulation procedures with the more realistic and more relevant activity-based costing system, after taking into consideration the minor drawbacks of the activity-based costing system. Part 3 – Reflective discussion of personal learning and development Working with the group has been a very invigorating one. The challenges posed on each group members were worth the sleepless nights. The crafting of the group’s final paper show the sweet fruits of our endeavour to put our classroom lessons into practice. The exchange of information among the group members showed our eagerness to cooperate and exchange notes. In the end, the presentation of this paper proves that we, as a group, can easily overcome all the obstacles to accomplishing our assigned tasks. My group of 5 people seems like a group of companies. Each group member represents the aspirations of entire group, for separated we fall and together we are strong. Reflection 2 In terms of personal learning and development, the group assignment was very enriching. I had learned that there are different costing systems. I also learned that the activity-based costing system had more benefits compared to the traditional costing method. While analyzing the cost methods, we learned to synchronize our topic in order to come up with a complete work. Likewise, the group activity incorporated reducing redundant research assignments. The research enhanced my personal learning and development. On my part, gathering the different expenses needed to come up with the better net profit report was very challenging. My focus was on determining which expenses form part of the activity costs. I learned that activity costing helps pin down which expense problems should be given more attention. Reflection 3 The group discussion added more knowledge to my current stock of accounting and finance information. Pertaining to personal learning and development, I had learned the importance of using activity costs in making better management decisions. I had also learned that different activities generate different costs. I had also learned that different activities generate different costs amounts. The analysis of the different activities helps me determine which activity generates high expenses. Similarly, the different activities indicate which expenses can be reduced and which expenses cannot be lessened to allowable levels. The research proves that management decisions should be based on supporting accounting facts. The accounting facts include the expenses generated by each department. Reflection 4 Our group was enjoining the many fruits of our group work. On my part, i borrowed 20 books on the topic of activity based costing, improving my personal learning and development. At first, the topic was very vague and confusing. However, as i read the 20 books, I now learned the intricacies of computing the activity costs needed to improve the current management decision making activities. I also learned that managers should be assigned to monitor and control the expenses of each activity. For example, the finishing department supervisor must focus on reducing the finishing department costs to allowable levels. Similarly, the painting department head is responsible for controlling the costs of all activities within the painting department. Reflection 5 My learning experience on the topic of activity-based costing system has gained me the additional knowledge needed to improve my management decision making skills. The discussion on the advantages of activity-based costing system over the traditional matching cost historical income statement procedure gave me a better view of which costing method can offer better decision making facts, enhancing my personal learning and development. With the better decision making facts contributed by the activity-based costing system, i am more assured that the decisions on which recommendation will be implemented will be a well-researched and well-grounded choice. Further, the research impressed on me that managers must be responsible for controlling the costs and expenses of his or her own department. Read More