Activity-Based Costing
Christine Mosqueda
ACC 310: Cost Accounting
Activity-Based Costing
Instructor Bradley Johnson
December 17, 2012
Activity-Based Costing
In business, there are two separate costing methods that a firm can use. One of those methods is called traditional costing system and the other is activity-based costing. Activity-based costing (ABC) is a costing method that focuses on identifying activities which allocates the costs of each activity a firm uses. From our text, it identifies Activity-based Costing as “a two-stage product costing method that assigns costs first to activities and then to the products based on each product’s use of activities” (Lanen, 2011, p. 329). A firm employing such a system provides a better understanding of the goods and services that it uses. Developing such a system in a firm comes from proper planning. When developing a firm, it is effective to follow certain steps to identify the process to attain the goals the firm has set. At times, many firms set certain examples by the managers to help understand the direction in which the firm is heading to become more effective. Activity-based costing is not only an effective way to run a business but as the individuals involved in the business become more aware of how to use this type of method, activity-based costing then becomes a strategic method in which a business could then make future developing ideas in which the company can expand.
Activity-based Costing (ABC) is a costing method that focuses on identifying activities then allocates the cost of specific activities the firm carries out. This method of costing confirms that the costs are accurately distributed to the products or services that allocate them. ABC demonstrates costs more effectively, making it relevant for management to improve on decisions associated with certain activities. When the ABC method is utilized in a firm, it extends the decision-making abilities of management by broadening on traditional costing techniques.
ACC 310: Cost Accounting
Activity-Based Costing
Instructor Bradley Johnson
December 17, 2012
Activity-Based Costing
In business, there are two separate costing methods that a firm can use. One of those methods is called traditional costing system and the other is activity-based costing. Activity-based costing (ABC) is a costing method that focuses on identifying activities which allocates the costs of each activity a firm uses. From our text, it identifies Activity-based Costing as “a two-stage product costing method that assigns costs first to activities and then to the products based on each product’s use of activities” (Lanen, 2011, p. 329). A firm employing such a system provides a better understanding of the goods and services that it uses. Developing such a system in a firm comes from proper planning. When developing a firm, it is effective to follow certain steps to identify the process to attain the goals the firm has set. At times, many firms set certain examples by the managers to help understand the direction in which the firm is heading to become more effective. Activity-based costing is not only an effective way to run a business but as the individuals involved in the business become more aware of how to use this type of method, activity-based costing then becomes a strategic method in which a business could then make future developing ideas in which the company can expand.
Activity-based Costing (ABC) is a costing method that focuses on identifying activities then allocates the cost of specific activities the firm carries out. This method of costing confirms that the costs are accurately distributed to the products or services that allocate them. ABC demonstrates costs more effectively, making it relevant for management to improve on decisions associated with certain activities. When the ABC method is utilized in a firm, it extends the decision-making abilities of management by broadening on traditional costing techniques.