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Managment accounting - Essay Example

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The results stated between the ABC and the traditional absorption costing shows that the ABC method is better than the other since it entails relatively higher profits which is the key thing in accounting results. However there is a difference between the costs incurred in both…
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Download file to see previous pages The profit should be higher than the cost of production.
There is increased desire by companies to know the behaviour of factors that drive to different cost .In increasingly competitive business environment organizations seeking to maintain or improve their competitiveness need cost information that is relevant and accurate. This system is based on cost modelling that traces an organization expenses both direct and indirect (Thukaram, 2007, p. 171). The activity based costing is fashionable because it has the advantage of advanced technology to the management of an organization.
Hence; organizations are automating what previously had been manual jobs. The primary reason for the shift is also due to the different channels of distributing the variety of products and services, in addition the organization has been servicing different types of customers (Nolan, 2004, p. 17).Hence sufficient information can be obtained to make decisions about the profitability of different product lines. It also helps the organizations provide value added services or “top-ups” to existing products on actual cost incurred basis thus creating efficiency.
The introduction of this greater variation and diversity creates complexity and increasing complexity results in greater overhead expenses. The fact that this expense overhead in recurring the labour expense does not mean that the organization is becoming inefficient, is means that the company is offering variety to different customers (Humphrey, 2007, p. 100).It traces indirect cost also called overhead to products, customers and services by identifying resource and their cost, the consumption of this resources by activities and performance of activities to produce output. Thus eliminating unprofitable items from the product line, thereby increasing profitability without increasing prices, a ...Download file to see next pagesRead More
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