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Managerial Accounting: Activity Based Costing - Research Paper Example

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The paper "Managerial Accounting: Activity Based Costing" seeks to discuss activity based costing as an element of managerial accounting. It also explores the relationship between activity based costing, traditional methods, and activity based management…
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Managerial Accounting: Activity Based Costing
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Download file to see previous pages  Since some of the activities are immaterial and insignificantly affects representations, only material overhead activities are identified. The identification of the significant overhead costs should include both costs that relate to production activities and other costs that do not contribute to the organization’s production process. Once the significant costs have been identified, they are grouped according to the activities that generate them. Such categories may vary from one industry to another and among the organization. Using cost drivers, the costing approach measures the activities in order to determine the rate of allocation to each single activity. Once the activities have been quantified, “costs are assigned to products” based on the activity quantification (Jiambalvo, 2009, p. 210, p. 210).  Some of the major classification of activities includes operations of materials, installation, and maintenance of machines, production processes, and supervision. Cost drivers could, on the other hand, include "number of purchase orders, number of material requisitions, number of set ups, number of machine hours and number of inspections" among other cost drivers (Jiambalvo, 2009, p. 210, p. 2011).
 Activity based costing and activity based management
 While activity based costing quantifies activities with the aim of allocating costs to each category of activities, activity based management applies the results of activity based costing in ‘decision-making’. ...Download file to see next pagesRead More
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