activity based costing - page 2
Keywords: ABC
By finil on 15/05/2009
Level: Master's degree (MA, MBA, MSc, MEng, MRes, MPhil etc)
Page Number: 2 of 8 pages: 1 2 3 4 5 6 7 8
each item. Some way each event is linked with General Ledger, so ABC is linked with traditional costing system.
ABC system provide a method to placing costs on the basis of actual and it upcoming development. As a event, costs and use of recourse are time phased. ABC is able to provide foretasted results about expenses and revenues.
HISTORICAL DEVELOPMENT OF ACTIVITY BASED COSTING SYSTEM (ABC)
During 1980, the principles of ABC were developed in the manufacturing zone of United States. At that time, CAM-I (Consortium for Advanced Manufacturing-International) provided an important role for formulating the concepts of ABC. The limitation of traditional costing system is, it unable to calculate the actual cost of production and cost related services. As a result, managers were unable to make correct decisions. Beginning in 1988, Robin Cooper and Robert S.Kaplan has described to solve the problems of traditional cost management system by ABC.
The development of ABC has been made because of its accurate data and covering all aspects of cost. Every organization is dissatisfied with traditional costing system, because it doesn’t meet their requirements. The Articles of ABC has begun to appear only in 1988, but according to survey (by Innes and Mitchell -1995) saying only 20% of organization had already implemented, and 27% of the respondents were still considering of ABC. Even though, ABC has excellent amount of result from organization, since it provides basic calculation of accurate product cost and mechanism for managing cost than the traditional costing system. And also reported that the ABC users are facing the outweigh of cost reduction and cost management. So many of the organizations are not using ABC system to assign costs to products, rather than they are establishing activity cost pool and cost drivers.
IMPORTANTS AND WORKS OF ACTIVITY BASED COSTING
Activity Based Costing helps managers to identify the value-added activities that implement the objectives of customer needs and services through the decision making process. It promotes to evaluates the efficiency and effectiveness of cost program events. The major importance of ABC, produce the helpful information of how the cost has been generating and how its being spent. So managers will get the useful decision making process steps,through better information. The major concepts of ABC is to generate a clear-cut information of particular area of business performs. So employees can understand the different cost involved in activities.
ABC mainly dealing with the production cycle. In that it
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