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Steps for Implementing Activity-Based Costing - Research Paper Example

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This research will begin with the statement that companies in their bid to increase returns must check on costs and ensure that they are well managed. If costs are better controlled, the profitability of the company will be enhanced and investors will be attracted to the company…
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Steps for Implementing Activity-Based Costing
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Download file to see previous pages The present research has identified that the determination of the cost amounts allocated to a particular activity will also help in the determination of the product costs hence assist in the setting of the selling prices. ABC costing system implementation requires following various steps in order to help maximize the value of the shareholders. The first step in the implementation of ABC costing just like other accounting system is the review of the company’s financial information. All the financial necessary can be extracted from the company’s income statement or the balance sheet. The totals of the cost of the activities can thus be identified before beginning the analysis. From the balance sheet and the income statements, all the expenses that are incurred by a company can be identified. The expenses can further be categorized in terms of similarities i.e. cost that are similarly gathered under one heading. Secondly, the management has to identify the main activities of the business. This stage involves the determination of the major and core activities that consume the business resources and that are responsible for the large capital investment. These activities have to be linked to the actions that take place in the company i.e. in a manufacturing firm, the different working stations can be viewed as completely different activities undertaken to deliver the outcome to the consumers. The application of flowcharts and maps can help to fully determine all the activities performed by the company. The activity determination is time-consuming and should be comprehensive. In addition, omission in identifying an activity would cause errors in the system and the exact cost will not be determined at the end of the process. ...Download file to see next pagesRead More
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