Activity Based Costing Essay -- essays research papers

triggernatural process Based Costing ( alphabet) addresses internal operating concerns and is an augmentation to the traditionalistic hail attention system. It is not a replacement for traditional accounting, but makes utilize of the source documents provided from standard job be systems. first principle looks at a business units events as terms drivers and assigns all in all company resources and accumulated be against those events in a time-phased sequence. Revenue tracking provides guidance with a different point of view on the profitability of harvests and services, providing brain wave into pricing. Middle management and technical perform organizations are involved in the line item reporting provided within the ABC system, enabling management to achieve more responsibility of reported information throughout all levels of the organization. ABC is being ostensible by the accounting industry as the wave of the future and is gaining broad acceptance within larger org anizations. This system is intended to provide performing entities and management alike. History of ABCActivity Based Costing (ABC) is an approach to costing that considers the resources consumed by activities in smart set to create and deliver a merchandise or service. It evolved in the mid-1980s to ameliorate the allocation of manufacturing overhead costs to products, but it soon became apparent that activity-based costing systems could be expanded to include non-manufacturing costs (Langfield-Smith, Thorne & Hilton, 2004).Review of ABCWhereas the fundamental assumption of a conventional costing system is simply that products create costs, an activity based costing system assumes that cost objects (e.g. juice) creates the demand for activities (e.g. manufacturing), which in turn causes resources to be consumed (e.g. manufacturing time, outlet space, etc.) and causes costs. Cost objects are the reason for performing activities, and activities are the processes or procedures th at cause work and create costs. ABC analyses costs from the perception of the how much a particular activity costs, and the amount of resources consumed by the end product of the activity. Using activity based costing differs from traditional cost accounting in that the focus is on the activities that are essential to produce an end product, rather than assuming that the volume of the end product is the only driver of costs. A cost driver is ... ... operationsProblems with ABCWhile activity-based costing may yield more critical product cost estimates, it must pass a cost benefit raise before being implemented. Activity-based costing requires a much more detailed breakdown of costs into activities that cause costs. This can be a mixed childbed involving the teamwork of management, production, accounting, purchasing, marketing and many others. A company should implement ABC only if it thinks the benefit from improved management decisions will outweigh the cost of establishing an d maintaining the new cost system. Furthermore, there might be underestimation of the task of collecting activity driver data, and the implementation of this system may be considered a financial management which might cause insufficient freight from operational managers.We should use activity-based costing if we find the benefits from the new system pass its costs.REFERENCE1.Innes, J & Mitchell, F. (1991), Activity Based Cost care?, CIMA2.Smith, K.L., Thorne, H., Hilton, R.W., (2004), Management Accounting an Australian perspective?, 3rd edition, McGraw Hill