Activity Based Costing

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Analyse the evolution of ACTIVITY BASED COSTING (ABC).

What Factors led to its emergence.

Contents
Abstract………………………………………………………………………………………. 3 Introduction……………………………………………………………………………….. 4 Activity Based Costing (ABC)……………………………………………………..…. 5 * What is ABC
* Development Of ABC
Terms Involved in ABC & Stages of ABC………………………………………… 6 Evolution Of ABC………………………………………………………………………… 7 Phases of development of ABC……………………………………………………… 8 What led to the emergence of ABC……………………………………………….. 10 * Traditional Costing V/S Activity Based Costing

Advantages of ABC……………………………………………………………………… 11 Activity Based Costing – A tool For decision Making……………………… 14 How is ABC better than Traditional Costing…………………………………. 15 How ABC showed changes in firms Finance…………………………………. 17 * Example

Limitation of ABC……………………………………………………………………… 24 Conclusion……………………………………………………………………………….. 25 References……………………………………………………………………………….. 26 ABSTRACT
In today’s advanced manufacturing and competitive environment, accurate costing information is crucial for all the kinds of businesses, such as manufacturing firms, merchandizing firms, and service firms. Argued to be superior to the traditional volume-based costing system, Activity-Based Costing system (ABC) has increasingly attracted the attention of practitioners and researchers alike as one of the strategic tools to aid managers for better decision making. The benefits of ABC system and its impacts on companies’ performance have motivated numerous empirical studies on ABC system and it is considered as one of the most-researched management accounting areas in developed countries. Previous research on ABC have examined pertinent issues related to ABC implementation such as the levels of ABC adoption in various countries, the reasons for implementing ABC, the problems related to ABC and the critical success factors influencing ABC.

Activity Based Costing (ABC) is a method for developing cost estimates in which the project is subdivided into discrete, quantifiable activities or a work unit. The concepts of ABC were developed in the manufacturing sector of the United States during the 1970s and 1980s. ABC systems calculate the costs of individual activities and assign costs to cost objects such as products and services on the basis of the activities undertaken to produce each product or services. The CIMA technology defines ABC as a cost attribution to cost units on the basis of benefit received from indirect activities.

Introduction

A powerful tool for measuring performance, Activity-Based Costing (ABC) is used to identify, describe, assign costs to, and report on agency operations. A more accurate cost management system than traditional cost accounting; ABC identifies opportunities to improve business process effectiveness and efficiency by determining the "true" cost of a product or service. Activity Based Costing is a method for developing cost estimates in which the project is subdivided into discrete, quantifiable activities or a work unit. ABC systems calculate the costs of individual activities and assign costs to cost objects such as products and services on the basis of the activities undertaken to produce each product or services. It accurately identifies sources of profit and loss.

Activity based costing
A tool for decision making

WHAT IS ACTIVITY BASED COSTING?
Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.

Activity-Based Costing
* ABC development.
The concepts of ABC were developed in the manufacturing sector of the United States during the 1970s and 1980s.It is a practice in which activities are...
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