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VIEW THE STEP-BY-STEP SOLUTION TO:ACT 2_06 Activity-Based Costing (ABC) has been developed as a methodology for determining the cost of products and services.
This question was answered on Jul 16, 2015.
ACT 2_06
Activity-Based Costing (ABC) has been developed as a methodology for determining the cost of products and services. Activity-Based Management (ABM) has been developed as a basis for the use of financial information for managerial decision-making. This assignment introduced you to the basic concepts and applications of activity analysis and ABC. Utilize the knowledge base you gained from the Lecture and Research Update and your Required Readings to complete this activity.
Research at least two (2) articles that include a description of a company’s design and implementation of an ABC system. Good sources include Strategic Finance, Management Accounting Quarterly, and the Journal of Cost Management.
Then prepare a report on your findings. Your response should include the following.
Company NameCompany IndustryDescription of the ABC ApplicationAssessment of the Benefits of the ABC System for the CompanyDiscussion of the Implementation of an ABC Project
Your Activity responses should be both grammatically and mechanically correct and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document them in a bibliography using APA style. (A 4-page response is required.)
Expert Answer
Activity based costing
In the traditional costing system., cost were first collocted from the production department and the service department and finally the cost of production department id absorbed by jobs or processes.But now, under the context of activity based costing, the cost are collected according to the activities such as material handling, quality tesitng, machine setups, customer support service etc. and jobs and processes for which cost collection is being attempted are located with cost of these activities rationally.
Is is useful when the company, produces wide range of products and a direct cist represents only a small percentage of totla cost.
Following are some factors whic led to the development of ABC
1. Traditional system are driven by need to value stocks rather than to provide meaningful product cost.
2.Traditional costing oftrn fails to highlight inter-relationship among the activities in different departments.
3.Traditional costing falils to cpature cause and affect relationship.
4.Complexity has increased, product ranges are wider, product cycles are shorter and demand for quality os higher.
5.Decresing cost od information processing because of continual improvement in information gathering technology for adbanced decision making to gain competitive advantage.
Following are some stages of Activity based costing
1.Identify the major activities in the organisation
2.Detremine the cost drivers for each activity
3.Create cost pools to collect activity cost having the same cost driver
4.Calculate cost driver rate( Activity center cost/activity driver)
5.Apply the activity cost driver rates to product to arrive at the activity based overhead cost.
