activity based costing - page 3
Keywords: ABC
By finil on 15/05/2009
Level: Master's degree (MA, MBA, MSc, MEng, MRes, MPhil etc)
Page Number: 3 of 8 pages: 1 2 3 4 5 6 7 8
involves the require activities to produce the out-put, and consumption of resources for the activities. It enables the relationship of cost driver to events. Activity Based Costing is based on unit cost to out-put and resources utility(total cost). Following chat shows how ABC works:
BENEFITS OF ACTIVITY BASED COSTING
By adopting ABC, firm will get reduced production cost and improve the efficiency of decision making. In other words, the company will able to produce out-put with a limited resource by different activities. Following are the benefit that will helps the company by adopting ABC system:
1.Decision making
By implementing ABC system, managers will able to get the accurate data regarding product development, product design decisions, better customer activity judgement. ABC system is best for making decision about the process involved in the all cost field.
2.Out-put measures
ABC provide more correct data regarding the quantity of output produced and it involved to measure the cost of product , and profitability. It is a good informative for strategic decision regarding pricing, promotion and market segmentation.
3.Cost of capacity utilization
The plant capacity utilization is very important to firm,so the use of plant capacity should accordingly. But because of the seasonal variation and cyclical fluctuations in production and sale, the plant capacity is being unused. In this circumstances ABC system will provide the details to analyse the cost of unused plant capacity and solving problem in a separate accounting.
4. Estimation of cost
Cost estimation is very important aspect in a organization like forecasting price,budgeting and planning. So if a firm following ABC method/system, they will get the correct data with up-to-date involving cost estimation steps.
5. Process developments
ABC system is good informative method. It will enables the information regarding different areas where process development is needed. So through that firm can develop the process steps.
Following are the some of common advantage of ABC system:
Determined a improved marketing mix
Easily determine the most and least of product cost and cost pool.
Analysing the financing performance of the firm
Determined the poor and best performance.
It covers all the aspects of cost activity that help to forecasting cost activities.
HOW ACTIVITY BASED COSTING SYSTEM HELPS THE COMPANY
As a financial services sector will have wide-verity of product like current,resale,default etc. These products have been originated by different financial sectors. When the sector facing more competition, some national famous people will focus on product,and other financial institutions will make negative impact on them. So financial
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