Advantages of Activity Based Costing

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In modern business environment, the use of traditional costing system is no longer relevance to the company to achieve competitive advantage. Nowadays, Activity Based Costing is considered as one of the effective tools to enhance the ability of the organisation to meet global competition. This had resulted in the change from traditional costing system to an increasingly popular costing system such Activity-Based Costing (ABC). ABC system has emerged as an alternative to traditional costing system to meet the need for accurate cost information about the products, services, customer and processes. ABC performs the arithmetic to provide accurate cost information while Activity Based Management (ABM) is focused on using this information obtained from ABC to manage activities in order to improving business (Gunasekaran et al., 2000). Generally ABC systems enable indirect and support expenses onto each activity. Following by identify the cost drivers to measure the activity used by cost objects and allocate them to cost driver. In order word, ABC helps the manager to understand about the cost and expense in each production by giving managers a clearer picture of the economics of their operations to managerial decision making at a strategic level (Kaplan and Copper, 1998).
Apart from that, in twenty-first century market which is global consumer markets and rapidly changing product technologies have forced global manufacturers to make dramatic changes in their products, markets as well as production strategies. In order to stay in the global market, organisations are advice to adopt ABC not only produces products at faster rates, but they produce with greater consistency and conformity to quality specifications. Also, ABC system allows the manufacturers to reduce the time between customer order and product delivery which can gives the manufacturer a competitive advantage in improving customer service (Gunasekaran et al., 1999). Therefore, it is necessary for organisation

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