Premium Essay

Abc Accounting

In: Business and Management

Submitted By jparson1982
Words 1314
Pages 6
Running head: ABC Systems: Are they Advantageous
ABC Systems: Are they Advantageous
Jamie Parson
Liberty University

Abstract
Activity based cost accounting provides companies with detailed and pertinent information that enables them to accurately cost the manufacturing products. Although it is at time confusing the use of an ABC system allows managers the details they need to make educated decisions about production and costs. The use of the ABC system is not always the most popular way for companies to go, but is it worth it?

ABC Systems: Worth the Work?
Activity Based Costing or as it is more commonly labeled “ABC” is a costing system that firsts assigns cost to activities and then assigns them to product based activities used towards that product. Costs are assigned to activities in a detailed manor so that detailed costs per activity are available. Once costs are assigned to activities they are than assigned to products based on the products use of that resource. ABC techniques allow businesses to decide which products, services, and resources are increasing their profitability, by providing more detailed information to management. The implementation of an ABC costing method it not right for all corporations; however for the corporations that fit the model for an ABC system, managers are more educated to make informed decisions about the true cost of a product. The use of this system allows more accurate and cost effective: pricing, costing, process improvements, product design, and manufacturing. Although the ABC method of costing has decreased over the last decade it still does have its purpose and can be very helpful to many corporations by providing detailed accurate information for costing purposes. “ABC has stagnated over the last five to seven years.” (Kaplan)
Since overhead costs are a large portion of the costs associated with a…...

Similar Documents

Premium Essay

Costos Abc

...sector—banks—needs accurate cost information to make strategic decisions, and how more refined accounting systems help fulfill this need. Buckeye National Bank is a hypothetical bank that has suffered falling profits despite a shift in customer base toward retail customers, which the current information system reports are more profitable than business customers. Following a step-by-step approach, you will develop the Bank’s average cost of serving a retail customer account and a business customer account, under (1) the Bank’s traditional single allocation base system, and (2) a (pilot test) activity-based costing system. You will analyze these results to determine how and why costs reported by the activity-based system differ from the costs reported by the traditional system, and what this difference means for the Bank’s business strategy. Finally, you will consider how the Bank’s managers can use the new, more refined activity-based cost data in strategic decision making, including controlling costs and developing more profitable business strategies. TEACHING NOTES Background and Purpose Textbook illustrations and pedagogical cases on activity-based costing (ABC) typically focus on manufacturing applications.[1] However, the U.S. Bureau of the Census projects approximately 74 percent of the workforce will be employed in the service sector by 2006 (U.S. Bureau of the Census 1999). Furthermore, ABC and customer costing are increasingly popular among service......

Words: 5536 - Pages: 23

Premium Essay

Abc System

...Isa becoming more and more popular [3-7] ABC aims to provide accurate costing information to managers to allocate activity costs to products and services by applying cost drivers [8]. Academics who advocate ABC, such as, Cooper and Kaplan [9], and Swenson [10] argue that it provides more accurate cost data needed to make appropriate strategic decisions about product mix, sourcing, pricing, process improvement, and evaluation of business process performance. These claims have led many firms to adopt ABC systems [8]. The benefits of ABC and its positive impact on firm’s performance motivated a numerous studies which examined various aspects of ABC. Among such studies are McGowan [11] who assessed the integrity of ABC success, Innes and Mitchell [4, 12] and Yanren [13] who conducted research on factors affecting ABC adoption, and Shield [3], Shields and McEwen [14], Gosselin [15] and Baired et al.[16, 17]who concentrated on factors influencing ABC success especially at the implementation stage. However, there is mounting evidence that suggests most of firms are experiencing problems in implementing ABC and, in some extreme cases, ABC implementation is not successful [3], which later resulted in abandoning the ABC systems altogether [15]. Questions arise as to why ABC implementation is successful in certain companies and fails in others. Based on the contingency theory, researchers have argued that the reasons for different degrees of ABC success could be due to the different......

Words: 6138 - Pages: 25

Premium Essay

Management Accounting Abc Method

...Management Accounting Assignment Activity-Based Costing (ABC) is a theory for cost management controlling. Activity based on the management aims to describe a company as a series of activities which are related to customers’ desires and costs. Activity-Based Costing is a process for calculating the cost of the activities of an organization. Activities within an organization are identified and an average cost is related to each activity. The total cost of a product is the sum of the total costs of activities required to produce the product. The cost of every activity for products is identified as (the average cost of the activity) * (the number of times the activity, which is required for that product). Cooper and Kaplan (1992) explained how Activity-Based Costing allows the very important distinction between resource usage and resource purchase. The difference is the unused capacity. Removal of this unused capacity allows costs to be decreased. Turney (1992) thought that the important non-temporal links between cost and company quality. He also explained how it is important between assets, resource drivers, activities, activity drivers, processes, company performance, cost drivers, and cost. Turney (1989) claimed that underlying Activity-Based Costing is type of an assumption that activities cost resources and products consume activities. Activities contain the establishing vendor relations, spending, paying out, setting up a machine, running the equipment, reorganizing...

Words: 1255 - Pages: 6

Premium Essay

Abc System

...Requirements Discuss the advantages and disadvantages of using an Activity Based Costing (ABC) over other costing systems. Also identify at least one company that uses ABC and describe how it benefits the company. Introduction This paper has been formulated in order to determine the basic nature of Activity Based Costing, its advantages and disadvantages. These points are further elucidated by a case study of a Taiwanese hot spring country inn’s implementation of the ABC system. What is Activity Based Costing The Activity-Based Costing theory started in 1987 by Robert S. Kaplan and W. Bruns as a better alternative to the traditional costing method. It has activities as the fundamental cost objects and assumes that activities cause costs and that cost objects create demands for the activities. A traditional costing system uses a single, volume based cost driver. In most cases the traditional system assigned the overhead cost to products on the basis of their usage of direct labor. For this reason traditional cost systems often yields inaccurate product costs and becomes inadequate in terms of calculating true cost to produce specific products for specific customers. ABC system was developed to overcome the shortcomings of the traditional method by using many cost drivers to allocate a indirect costs instead of just using one cost driver such as machine hours. ABC system uses a different approach and allows improvement on the control of overheads by cost/cause......

Words: 946 - Pages: 4

Free Essay

Abc Accounting

...Detract yet delight written farther his general. If in so bred at dare rose lose good. Feel and make two real miss use easy. Celebrated delightful an especially increasing instrument am. Indulgence contrasted sufficient to unpleasant in in insensible favourable. Latter remark hunted enough vulgar say man. Sitting hearted on it without me. Smallest directly families surprise honoured am an. Speaking replying mistress him numerous she returned feelings may day. Evening way luckily son exposed get general greatly. Zealously prevailed be arranging do. Set arranging too dejection september happiness. Understood instrument or do connection no appearance do invitation. Dried quick round it or order. Add past see west felt did any. Say out noise you taste merry plate you share. My resolve arrived is we chamber be removal. Whole every miles as tiled at seven or. Wished he entire esteem mr oh by. Possible bed you pleasure civility boy elegance ham. He prevent request by if in pleased. Picture too and concern has was comfort. Ten difficult resembled eagerness nor. Same park bore on be. Warmth his law design say are person. Pronounce suspected in belonging conveying ye repulsive. Sigh view am high neat half to what. Sent late held than set why wife our. If an blessing building steepest. Agreement distrusts mrs six affection satisfied. Day blushes visitor end company old prevent chapter. Consider declared out expenses her concerns. No at indulgence conviction particular......

Words: 625 - Pages: 3

Premium Essay

Abc Costing

...Coverdrive Ltd Case Study: Activity Based Costing Situation At a recent management meeting at Coverdrive Ltd, the members of the senior management team discussed the introduction of a new product to the company’s range of high quality, hand made cricket bats. A major agenda item was pricing. The management accountant, since his appointment, had given much thought to pricing policy and one of his concerns was that of dealing with the recovery of overhead within a full cost pricing policy. The discussion centred around the traditional method currently in use, compared and contrasted with ABC, Activity Based Costing a technique which re-examines the problem that has faced accountants for decades – that of allocation and absorption of overhead. Traditional pricing method has been based upon absorption costing and the treatment of overhead usually followed a set procedure. ( Cost centres are identified and established within the organisation. ( Cost centres may be producing or service centres. ( Wherever possible a direct charge is made to a cost centre ie allocated overhead. ( Where overhead is jointly incurred it is apportioned to the cost centres on an equitable base. ( The overhead cost for the service centre is then transferred to producing centres. ( The total overhead cost for each producing centre is then divided by for example, machine or labour hours per the cost centre. ( An overhead recovery rate results. ( This is then used to...

Words: 1460 - Pages: 6

Premium Essay

Abc Cost Accounting

...Wilkerson Company Case: Wilkerson Company In the case, we have review the allocation of overhead by using Traditional Cost Accounting (TCA) and Activity Based Costing (ABC) in a manufacturing company named Wilkerson. Through the case study, I have learnt the importance of Cost Accounting System, the principles of TCA and ABC, the advantages and disadvantage of ABC, the practical use of ABC and cost reduction using ABC. 1. Importance of Cost Accounting System. Through the case study, I learnt that a proper Cost Accounting System is very important in a company. Without the accurate system, a company is unable to maximize the profit from the product sold. The product price might be charged too high (over-priced) or too low (under-priced). All these will eventually affect the profitability and revenue as it is actually making very minimum profit or even having loss by selling under-priced product and also might find difficulty to market its over-priced product. Indeed, with the accurate cost accounting system, the company can maximize the profit by setting the appropriate price and compete in the market, or the company can even identify the highest profit-generating product and concentrate their marketing promotion on it. 2. Principles of TCA and ABC. By studying the case, I also learnt the cost accounting system had evolved from TCA to ABC. The TCA method assumes that all products indirect cost is only driven by one cost driver which is number of direct labour. The......

Words: 505 - Pages: 3

Premium Essay

Abc Learning

...ABC learning a CSR Dilemma Synopsis ABC Learning was an Australian provider of early child hood education services, founded in Queensland in 1988. Through its 18 child care centres it was the largest almost monopolistic single operator of early childhood education services in Australia by 1997. Led by founder and CEO Eddy Groves, ABC Learning continued to grow, by opening new centres and the acquisitions of competitors both locally and internationally. The company experienced a significant drop in their share price in 2008. Trading in the company shares was suspended in early 2008, closely followed by the company going into receivership in November of 2008. This essay will examine ABC Learning and assess the impact of the company’s corporate social responsibility policy or lack thereof and how this contributed to their spectacular collapse. Particular attention will be concentrating on the ethical internal running of the company’s corporate structure and executive leadership, focussing in particular on Eddy Groves’ poor decision making, creative accounting and resulting organisational culture. Dahlberg & Moss (2005) claim that ethics is a practical matter which involves thinking about every day actions and decisions either individually or collectively and then responding with respect for all concerned. When values underpin our responses and choices, ethics is at work. In some instances our decision making can be hindered because......

Words: 3409 - Pages: 14

Free Essay

Accounting Chapter 17 Abc Virtual Corporation

...According to the Article “ABC in a Virtual Corporation;” in response to the questions I believe the company is operating under a decentralized system. The challenges that the company was facing during the time was control costs. The pricing strategy did not differentiate between small and large orders, so the profitability of the orders varied. They relied on requesting everyone to keep costs down and distributing the costs evenly. I feel that Super Bakery’s management thought it was necessary to install an ABC System because in the article, Super Bakery’s management suspected that costs were not the same for each order. Although it makes sense the costs in rural Iowa would not be the same as downtown city areas, the article makes it clear that ABC is needed for the differential size of the orders. Baked goods are batch goods, meaning the goods are made, cooked, and wrapped in batches because they are perishable and so you only make exactly what is needed before the ingredients possibly spoil. Large batches differ from small batches in that certain batch costs such as measuring, churning, and baking the ingredients. Super Bakery is suited to a job order cost system and not a process order cost system. Process cost systems are used when each unit of product is identical and the production process is the same for all batches. There is no change from one customer to the other because the product is standardized. Super Bakery has a range of products that differ in......

Words: 515 - Pages: 3

Premium Essay

Cost Accounting - Tradittional vs Abc

...An organisation so as to be to comply with financial reporting requirements, the traditional cost accounting system is closely linked to its general ledger system. This in particular has to do with cost allocation. Mostly, costs are accounted either for valuation (i.e., financial statements analysis) or decision-making activities (i.e., internal purpose) or both. Meanwhile, sometimes the costs are accounted for reimbursement purposes (e.g., corporate health insurance, corporate travel). The traditional approach to cost-allocation manages three sequence of actions: a) Accumulate and account costs within a production or nonproduction business area, b) Allocate nonproduction business area costs to production business area, and c) Allocate the resulting (revised) production costs to various products, services, or customers. Costs hence derived using traditional allocation approach suffers from some defects that can result in incorrect costs for decision-making purposes. For example, the traditional approach attributes the cost of idle position to systems. Accordingly, such costs are recharged to entities that did not use it. In order to find solution to such anomalies, many organisations have adopted a separate cost-allocation methodology called Activity Based Costing (ABC). WHAT IS ACTIVITY BASED COSTING? In contrast to traditional cost-accounting framework, ABC framework first accumulate overhead costs for each organizational activity, and then assign the......

Words: 1029 - Pages: 5

Premium Essay

Abc Priority

...of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold.^ Thus, conventional systems do not measure accurately the costs of resources used to design and produce products and to sell and deliver them to customers. Companies, including those with excellent traditional cost systems,^ have developed activity-based cost systems so that they can directly link the costs of performing organizational activities to the products and customers for which these activities are performed. ments.^ The following equation, defined for each major activity performed by the organization's resources, formalizes this relationship: Activity Availability = Activity Usage + Unused Capacity A simple example illustrates the difference between the cost of resovirces supplied and the cost of resources used to perform activities. I. ABC SYSTEMS AS RESOURCE USAGE MODELS Activity-based cost systems estimate the cost of resources used in organizational processes to produce outputs.^ Many people have attempted to interpret activity-based costs using their more familiar fixed versus variable cost framework, an interpretation inconsistent with an ABC system's measurements of resource......

Words: 8179 - Pages: 33

Premium Essay

Abc Abc

...of the product sold in these new outlets. Just as companies like Burberry realized in the late 1990s, you cannot position yourself at the premium end of the market if your products can be bought at any local store. Krispy Kreme was pricing at a premium and as a consequence, when customers made a purchase, they wanted not just great taste but also a product that said something about them as a consumer. This high value brand equity was frittered away as Krispy Kreme glazed doughnuts could be purchased at most branches of Walgreen’s. Related problems subsequently emerged. Financial mismanagement and possible improprieties were uncovered as Krispy Kreme became the subject of an accounting probe by securities regulators. It received a formal Securities & Exchange Commission inquiry in July 2004, for its accounting related to the buyback of several franchises. As the stock price plummeted, a raft of law suits from various shareholders followed. 48 Krispy Kreme Doughnuts successfully introduced an attractive value proposition based on high quality, great taste and cool image, allowing them to refashion the long-established doughnut market. But the rush to be a big improver saw the company shoot from laggard to leader … and back to laggard again. Krispy Kreme met with problems not because of awkward shareholders, fickle customers or predatory competitors. Changes happened and challenges emerged, sometimes unexpectedly and unforeseen. But if the company had stuck to its......

Words: 103858 - Pages: 416

Free Essay

Abcs

...Kyesha Buckham  English 96  Wanda Haynes  Achieve Your Dreams­Remember Your ABC’s      I never had  that inner voice that pushed me to get to my goals. So because of that I had  to build my inner self motivation and the way I did that was by creating  my own quotes I can  use to motivate myself . “To achieve your dreams remember your abcs “ the title is very literal.  Wanda Carter gave words of wisdoms to live by in a very creative way. She used a skill that we  all knew our ABCS, and provided us with phrases and terms not many of us know how to  achieve and understand. Within each line a message is told, that I myself can very well relate to .  Take your own advice and stay positive  in your path of success . That statement alone  explains the message that Wanda Carter wanted her audience to receive. Her first line and one of  the most important was “Avoid negative sources, people, things and habits”. Everyone has ideas,  inspirations and goals that they want to reach. When those ideas are shared negative feedbacks  and criticism are always thrown out that most people do not know how to handle. This poem is  more like a how to , steps to reach  success. With these  phrases people that need a little push  will feel like their in control . As stated in the last line “ Zero in on your target , and go for it”.  All of us need some type motivation and strength to push us to succeed, as Wanda Carter  writes, “ Understand yourself in order to better understand o......

Words: 714 - Pages: 3

Free Essay

Abc Accounting

...Accounting International Project Doing business in a particular nation requires a focus on a multi-dimensional understanding of its culture and business practices. Understanding those differences and adapting to them is the key. In such a richly diverse and complex country as India it is difficult to impart generic conclusions that can be used by those doing business there. Regionalism, religion, language and caste are all factors that need to be taken into account when doing business in India. Behaviour, etiquette and approach are all modified depending on whom you are addressing and the context in which they are being addressed.  The business culture of India is a reflection of the various norms and standards followed by its people. Indians have various cultural yardsticks, which extend to their business culture too. Thus, it is important that a person visiting the country has an idea of the business culture of India. Thus, it is important that a person visiting the country has some basic idea regarding the business ethics and customs followed here. Having a good grasp on Indian business culture will ensure that you succeed in maintaining a well-earned affinity with your business counterparts. The following tips will give them an idea of the working and business norms in practice here. These form the basis of doing business in India as well as closely connected to risks of doing business in India. • The 'namaste' forms an important part of......

Words: 1213 - Pages: 5

Premium Essay

Abc System

...C H A P T E R F I V E INTRODUCTION TO COST MANAGEMENT Activity-Based Costing and Management After studying this chapter, you should be able to . . . 1. Explain the strategic role of activity-based costing 2. Describe activity-based costing (ABC), the steps in developing an ABC system, and the benefits and limitations of an ABC system 3. Determine product costs under both the volume-based method and the activity-based method and contrast the two 4. Explain activity-based management (ABM) 5. Describe how ABC/M is used in manufacturing companies, service companies, and governmental organizations 6. Use an activity-based approach to analyze customer profitability 7. Identify key factors for successful ABC/M implementation PART I Beware of little expenses. A small leak will sink a great ship. Benjamin Franklin This chapter has a lot to do with implementing the spirit of Benjamin Franklin’s observation—in cost management terms—that it really does matter how accurately you calculate a cost. Why? Having accurate costs is important for a variety of reasons: a company might find that it has a difficult time determining which of its products is most profitable. Alternatively, it finds its sales increasing but profits declining and cannot understand why. Perhaps the company keeps losing competitive bids for products and services and does not understand why. In many cases, accurate cost information is the answer to these questions. Accurate cost information provides a......

Words: 26371 - Pages: 106