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Activity-Based Costing
Organizations that need help being more efficient and cost effective look to different concepts for help, one such concept is activity-based costing. Activity-based costing is used to manage an organization better and is meant to help with decision making by coming up with better information about the cost and performance of activities, resources and objects that consume resources ("Activity-based management -- an overview," 2001). This essay will discuss ABC and activity-based management as well as how ABC is different from other concepts and explain three of those concepts; lean-manufacturing, just-in-time and theory of constraints.
ABC is used by the manufacturing industries, the financial service industry, and communications and public service sectors (Blocher, 2008). Activity-based management followed activity-based costing. Taking data from ABC, it uses it to manage the products, portfolios and business processes of the organization in better ways ("Activity-based management -- an overview," 2001). There are other systems that attempt what ABC attempts, but they differ in some aspects. A lot of other systems are volume-based as...
The information gathered by ABC is based on activities performed for the cost object instead of the volume of products produced, which has little to do with the consumption of resource cost (Blocher, 2008).
Activity-based costing tends to be most beneficial for larger industrial firms with more than one product and/or services (Blocher, 2008). Companies using ABC benefit because the control they gain over activities allows them to control cost ("Activity-based management -- an overview," 2001). Companies besides large industrial firms can successfully use ABC. One such company is the Hospice of Central Kentucky. After using activity-based costing, the hospice negotiated with their insurance company and got better payment terms more beneficial for them and were also encouraged to educate their referral sources to bring patients to the hospital before acute care became necessary, potentially saving them from doing more expensive procedures (Chung, n.d.).
There are other systems used by organizations to help with efficiency and reducing costs. Three of which are lean-manufacturing, just-in-time and theory of constraints;…
WORKS CITED
Accounting for management. (2011) "Just in time (JIT) manufacturing and inventory control system." Retrieved December 5, 2011 from www.accountingformanagement.com/just_in_time.htm .
Balderstone, Steven J. And Victoria J. Mabin. "A review of Goldratt's theory of constraints (TOC)-lessons from international literature." Retrieved December 3, 2011 from http://www.orsnz.org.nz/conf33/papers/p79.pdf .
Blocher, Edward J. et al. (2008) Cost management: A strategic emphasis (4th ed.). McGraw Hill: 119-169.
Chartered Institute of Management Accountants. (2001) Cima. "Activity-based management -- an overview." Retrieved December 3, 2011 from www.cimaglobal.com/Documents/ImportedDocuments/ABM_techrpt_0401.pdf .
(Questions that will assist in quantifying the relationship between resources and activities include: How much time is spent performing each activity? What equipment is used to perform activities? Do some activities have dedicated equipment? Do some activities require more space than others?) After the data on resources have been collected, establish cause-and-effect relationships between resources and activities or resources and cost objects. The third step in the process is
ABC can identify high overhead costs per unit and find ways to reduce the costs, avoid decreases in head counts due to inaccurate allocation of costs, and measure profitability with higher accuracy than traditional costing that uses direct-labor hours as the only cost driver (Activity-based costing, n.d.). Bibliography Activity-based costing (ABC). (n.d.). Retrieved Apr 2, 2009, from Managers-Net: http://www.managers-net.com/activityBC.html Activity-based costing (ABC): What is it and how can reengineering teams use it?
Activity-Based Costing in a Service-Based Organization Activity-Based Costing operates on the conventional approach and applies a two-stage allocation instruction and other cost drivers. First, the system identifies the important activities and overhead costs assigned to each activity in proportion to the resources used. Consequently, for each of these cost pools, cost drivers are identified. Secondly, the assumed overhead cost driver is assigned proportionally to the final outputs of the cost
Activity-based costing (ABC) employs numerous cost groups, organized by activity, in the allocation of overhead costs. The conception is that activities are necessitated to generate products, basically activities, such as procuring materials, setting up machinery, assembling products, and scrutinizing finished products. It is imperative to note that these activities can be expenses and therefore the cost of activities ought to be apportioned to products on the basis of how the
This paper is a discussion on Activity-based costing (ABC), one of the costing methodologies used in business. The methodology essentially entails assigning a cost to the various activities of an organization, which range from planning and production to quality control, logistics, and distribution (Kaplan & Anderson, 2007). It also entails determining the amount of time required to perform the activities (Kaplan & Anderson, 2004). The cost and time are then
organization applicability Activity-Based Costing (ABC). CISCO Corporation. Identify a product service organization ABC. You technique selling administrative costs. Then identify activities ABC cost drivers activities. Activity-Based Costing at Cisco Cisco Systems is one of the largest global corporations. It is headquartered in San Jose, California, and it employs over 70,000 individuals. The organization manufactures consumer electronic goods, as well as other types of product and services, such as the networking or