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Costs are first allocated from resource cost pools such as plant wide and department cost allocations. The resource cost pools may associate materials and labor costs. Second, resource drivers are identified. Resource drivers are also called cost drivers that measure the consumption of resources by an activity and assign costs to such consumption. Let us write or edit the essay on your topic "Plantwide and Department Allocation Methods within an Activity Based Costing System" with a personal 20% discount.. Try it now The result of the assignment is an activity cost pool for each activity.
Plant wide and department allocation methods are derived from the allocation of overheads to production and service departments and then reallocating service departments cost to production departments in order to obtain the plant wide cost allocation. On the other hand, the ABC system assigns overheads to each major activity instead of departments. Therefore, the plant wide and department cost allocations are primarily used during identification of resource drivers and assignment of costs of resource consumption by an activity.
However, because of the complexity and large number of cost centers needed in an ABC system, plant wide and department allocation method are still widely used in performance measurement. The ABC system is utilized in strategic decision making processes such as pricing, cost reduction, and customer profitability (Drury,
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The main objective of this type of system is proper identification of all cost categories and using basing decisions on this information. Most organizations that use ABC systems have two costing systems – the official costing system that is used for preparing external financial reports
Based on the activity based costing (ABC) method, the company should increase the number of department stores, as part of its expansion strategy (Chakraborty, 2004). This is because, unlike the direct simple costing method, the activity based costing (ABC) has a higher level of accuracy.
Accounting for decision making Contents Contents 2 Introduction 3 Effectiveness of Traditional and Activity Based costing system 7 Effectiveness of Traditional Based costing system 7 Effectiveness of Activity Based Costing 10 Conclusion 13 References 14 Introduction Costing systems are types of information systems which require a particular type of information like the number of units produced and the number of direct labour hours of value that are involved in the process. These data are put as input into the costing system and the specific methodology of the costing system is used to produce information like the cost of the product and other important information as the output. The same da
Activity Based Costing (ABC) is a common procedure normally most of the organizations adopted to determine the price of their products or services. Both indirect and direct costs of manufacturing will be considered while calculating the unit price. This method proved to be an effective way to determine the true cost of a product or service.
Accountants have always paid close attention to costs, since this variable provides a basis that is utilized throughout the entire accounting information system. In a manufacturing firm labor and materials have always been cost
The briefing is inclusive of pertinent challenges, issues and the significance of the article to business organizations. Lastly, slide show contentment has been prepared, which include a sample question and answer on ABC. Below is the briefing. Cost allocation is a concept that refers to the determination of the expenses incurred to offer a service.