Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from essay:
The applicability of Activity-Based Costing for decision making is directly linked to the influences that ABC has over process control. In this order of ideas, by better identifying the incurred costs or the overhead, managers can better monitor and control the evolution of products, prices, costs and consequently, profits. ABC identifies the costs incurred by each item in terms of resources consumed. Therefore, with the aid of ABC, organizational managements have the ability to control resource allocation.
Activity-Based Costing reveals yet another significant feature: it has the ability to evaluate the costs of not producing an item. This basically means that with the aid of the ABC, managers are able to know how much they have lost due to machine malfunctioning, product damaging, increased inventory costs or time spent waiting for a machine component to be replaced. "Activity-Based Costing therefore gives not only much better cost control, but increasingly, it also gives result control" (Drucker, 2006).
4. Systems of Control within Organizations
As established by Kaplan and Cooper, organizations can be qualified in terms of their implemented control systems. Vicxo Software currently finds itself at the border of the second and third stages. In other words, it used to implement a control system based on revealing the features of the external environment. More recently however, they have understood the need for an internal control system as well and they are now striving to implement it.
The company discussed hereby activates in the it industry, with focus on developing software applications. Most of their contracts are signed with international partners and they have successfully collaborated with Ford Motors Corp, General Electric or UPC. The organization employs 170 staff members, out of which 120 are developers and testers. The remaining 50 individuals hold administrative positions, such as management, accounting or human resource. The 50 individuals which do not write code, and therefore do not register profitability, can be considered as generators of overhead expenditures.
The control system implemented by Vicxo Software is a strategic one, in the meaning that it focuses on the development of those strategies which will support the organization in reaching its overall goals. "Strategic control focuses on the dual question of whether: (1) the strategy is being implemented as planned; and (2) the results produced by the strategy are those intended. The basic criteria used to answer these questions are derived from: (1) the strategy and action plans developed to implement strategy; and (2) the performance results that strategy is expected to produce. If a deviation occurs, then feedback takes place and the strategic management process recycles" (Schendel and Hofer, 1979).
This type of control system is a more traditional one and it is based on three stages: first of all, the management at Vicxo Software develops the strategy; secondly, they implement it, and thirdly, they evaluate the results. They generically base their conclusions of review and feedback, which is not always the most favourable course of action. To better explain, feedback comes only after the strategy has been implemented and the results retrieved. It may then be too late to readjust the strategy to better meet the organizational demands of Vicxo Software. Also, this type of control considers numerous standards, which are taken for granted (Barnat, 2005). As a result, any deviations which might incur are likely to pose significant threats on the beneficial outcome of the implemented strategy.
5. Objectives of the System of Control
Vicxo Software aims to establish itself as an organizational leader in the field of information technology. They strive to achieve this desiderate by developing and implementing the most suitable strategies. In developing these strategies however, they must place an increased emphasis on the forces that affect the organization from both internal and external environments. This then means that the control system they are striving to implement is the appropriate course of action. Foremost, the strategic control system is dually implemented, in the meaning that it develops both business as well as it strategies which are aimed to support the company in reaching its established desiderates. Consequently, the goals of the control system are divided among the it and the administrative sectors.
The organizational goals that Vicxo Software hopes to meet through the implementation of the strategic control system are met at varying degrees and can be succinctly presented as follows:
IT Objectives of the Control System
Ensuring a better communication between developers and testers - has been achieved with the aid of a controlled corporate culture
Reducing errors in programming - has been limitedly achieved; a better control of the staff members increases their focus and attention, but also causes stress, leading as such to other errors
Increasing operational efficiency - this has yet to be fully achieved. The management has insisted on increasing the amounts of work performed within the same period of time, rather than ensuring that the quality of the tasks performed is increased
Achieving a better internal control over developers and testers - this has been achieved as the control system allowed managers to identify the amounts of time spent on productive work, procrastination and the performances registered by each employee
Business Objectives of the Control System
Reducing operational costs - this has been achieved, but the cost was that of letting some employees go and suffering the consequences of reduced employee morale
Reducing inventory costs - has been achieved with the aid of better monitored communications with the customers
Reducing the time it takes for a customer to receive the application and pay for it - has not been achieved as customers insist on first testing it; Vicxo Software should better manage customer relations throughout the period that the application is being developed
Increasing profitability - this has been achieved recently as the organization has been able to identify those departments which are the most profitable and further invest in them; the Java department for instance proved the most profitable in comparison to.Net or Magic recommendation for the further improvement of the control system within Vicxo Software would be that of integrating the Activity-Based Costing methodology as a means to better control costs. Foremost, given the nature of the operations handled, the organization could also combine software with ABC. This would further increase the advantages of the Activity-Based Costing system and would be rather easy to use by the personnel (including the administrative staff), which are already familiar with it concepts. An example of an application combining and enhancing the benefits of both it and ABC is ABC Focus. "ABC Focus is a tool which makes ABC concepts simple to understand and use. It is a very attractive package because its flexible costing model, consolidated reporting and a very competitive pricing regime make it suitable for large and small business in virtually any industry. ABC Focus provides a structured approach to cost products, services, processes, activities and unused capacity. It provides a platform on which to confidently adjust pricing and activities for competitive advantage" (Chellasamy and Ligy, 2008).
Another software application that could be used by Vicxo Software is the QPR Cost Control. This application has numerous benefits, including that it is extremely user-friendly and can be easily used by various corporate employees. "The [...] QPR Cost Control system helps to understand the real cost structure of the company and identify how the business really works. Using the proven approach Activity-Based Costing / Management, the software identifies exactly what costs are linked to each individual customer, product, service or activity. QPR Cost Control gives the information to make decisions about the most profitable path for the business" (Chellasamy and Ligy, 2008).
In the current context of a changing global environment, organizations look for new ways of achieving corporate success. A new course of action implemented in this sense is the development of more efficient control systems. One of the most relevant and emergent control systems is the ABC, or the Activity-Based Costing. A primary feature of the ABC is that it allocates the overhead expenditures according to numerous variables, unlike the traditional methods, which treat it in a more simplistic manner. With the aid of the Activity-Based Costing methodology, manufacturers are able to better monitor and control their incurred costs. Consequently, they are better able to make decisions. In other words then, the ABC is a useful tool for decision making.
However most scholars and academicians have understood the importance of the modern and more efficient control systems, economic entities have yet to successfully implement them. Most of the organizations are struggling between the second and third stages, as identified by Cooper and Kaplan. This means that they have gone passed the stage when they used an inefficient accounting system and are now struggling between a system focused on the internal and one system focused on the external features of business.
Barnat, R., 2005, Strategic Control: A New Perspective, Strategic Control, http://www.strategic-control.24xls.com/en139last accessed on October 21, 2008
"Financial And Managerial Accounting Activity-Based" (2008, October 21) Retrieved October 23, 2016, from http://www.paperdue.com/essay/financial-and-managerial-accounting-activity-based-27447
"Financial And Managerial Accounting Activity-Based" 21 October 2008. Web.23 October. 2016. <http://www.paperdue.com/essay/financial-and-managerial-accounting-activity-based-27447>
"Financial And Managerial Accounting Activity-Based", 21 October 2008, Accessed.23 October. 2016, http://www.paperdue.com/essay/financial-and-managerial-accounting-activity-based-27447
Activity-Based Costing and AIS Activity-Based Costing (ABC) is an accounting method that identifies the activities a company carries out and then assigns indirect costs (overhead) to products. Activity-based costing shows the relationships between the activities, the costs, and the products, and correctly associates the lion's share of the resources used with the actual production or provision of services. The recognition of these relationships enables the indirect costs to be assigned to products in
Managerial and Financial Accounting Case Managerial Accounting - Variable Costing Managerial accounting emphasizes short-term profit analysis, income statement important. Consequently, 'll examine discuss income statements case. Managerial and Financial Accounting Financial and managerial accounting basic difference comes on the uses. While, financial accounts are prepared for use by external parties, managerial accounts are prepared for use internally. The process of preparing the accounts in both financial and managerial accounting use similar source for
Managerial Accounting Managerial accountants are charged with all financial matters that do not pertain to the financial accounting statements. Within their company, they ensure that the company has good financial security, they perform analysis on costs and revenues, they perform budgeting, handle taxes, and their work is frequently used in strategic planning, whereby they provide the financial analysis to management to help make better decisions (No author, 2012). Some of the
2. Research the answers to management tax or auditing questions- once an accountant understands their job, they must be prepared to answer very specific questions concerning the accounting information that is provided (Johnstone & Biggs, 1998). While most CEO's and people in various departments have some understanding of accounting, there are some very intricate financial details that only accountants fully understand (Johnstone & Biggs, 1998). With this understood, successful accountants
Managerial Accounting According to Investopedia, management accounting is "the process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals." The essence of managerial accounting is that managers blend and merge accounting information into realistic and practical goals and objectives. Ultimately, mangers should try to incorporate the three E's of efficiency, economy and effectiveness. This essay will address three methods that attempts to address these three
Managerial Accounting Strategic Management in Large Multinational Corporations Strategic Sources, Inc. is a multinational organization that operates in 20 countries around the world. They offer a wide variety of products and services to their customers. Their extensive business portfolio includes some portions of the organization that serve as suppliers for other parts the organization. In an effort to increase profit margins, the Chief Financial Officer has been appointed the task of presenting
Managerial Accounting -- Budgeting 1 & (1) Is this a static or flexible budget? Since many of the budget line items are based on student enrollment, this budget format is considered to be a flexible budget. The costs of providing instructors and associated benefits is fixed by the state with regard to the ratio of students to teachers, and students per classroom (which is more a function of fire codes and building