Abc System - 26363 Words

C H A P T E R F I V E INTRODUCTION TO COST MANAGEMENT Activity-Based Costing and Management After studying this chapter, you should be able to . . . 1. Explain the strategic role of activity-based costing 2. Describe activity-based costing (ABC), the steps in developing an ABC system, and the beneï ¬ ts and limitations of an ABC system 3. Determine product costs under both the volume-based method and the activity-based method and contrast the two 4. Explain activity-based management (ABM) 5. Describe how ABC/M is used in manufacturing companies, service companies, and governmental organizations 6. Use an activity-based approach to analyze customer proï ¬ tability 7. Identify key factors for successful ABC/M implementation PART I†¦show more content†¦Note that whether the proportions used are based on units of product, direct labor hours, or machine hours, each of these is volume-based. But if, as is usually the case, the usage of these activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the volume-based approach. For example, suppose Al insists on more frequent inspections of his production; then he should be fairly charged a higher proportion of overhead (inspection) than that based on units alone. Moreover, why should you pay any portion of fabric cutting if your bedroom furniture does not require fabric? Another consideration is that the volume-based method provides little incentive for the manager to control indirect costs. Unfortunately, the only way you could reduce your share of the indirect costs is to reduce your units produced (or hope that Joe and/or Al increase production)—not much of an incent ive. On reï ¬â€šection, the approach that charges indirect costs to product based on units produced does not provide very accurate product cost for you or Joe or Al and certainly does not provide the appropriate incentives for managing the indirect costs. The solution is to use activity-based costing to charge these indirect costs to the products, using detailed information on the activities that make up the indirect costs—the materials handling, inspection, fabric cutting, and materialsShow MoreRelatedABC Furnitures Need for a Mobile Application System Essay1567 Words   |  7 Pages Executive Summary ABC Furniture’s has requested recommendations as to whether to build or buy the system for the proposed mobile application. This report supports a combination of software that can be bought off the shelf that has the controls and foundation in place for rapid deployment, while allowing custom configuration to meet the specific needs of the company. Introduction ABC Furniture’s has identified a need to implement a mobile application which will allow customers to securely viewRead MoreA Report On The Abc System861 Words   |  4 Pagesthat the ABC system is relatively new to cost accounting; however, some industries within the government and non-profit agencies use the system for improving cost determination. Additionally, the ABC system is utilized to maximum profitability, while ensuring adequate resources is available to meet demand (Kirche et al, 2005). However, in order for firms to adopt a costing system, managers must understand how beneficial the system can effectively improve the firm’s profits. An ABC system identifiesRead MoreA Report On The Abc System1280 Words   |  6 Pagesthat the ABC system is relatively new to cost accounting; however, some industries within the government and non-profit agencies use the system for improving cost determination. Additionally, the ABC system is utilized to maximum profitability , while ensuring adequate resources is available to meet demand (Kirche et al, 2005). However, in order for firms to adopt a costing system, managers must understand how beneficial the system can effectively improve the firm’s profits. An ABC system identifiesRead MoreThe Emergence of Abc Systems3874 Words   |  16 PagesActivity Based Costing (ABC) The emergence of ABC systems During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costsRead MoreAbc Costing System2276 Words   |  10 Pages5-47 ABC and TOC  Ã‚  Ã‚  Ã‚  Ã‚  Discuss the similarities and differences between activity-based costing and the theory of constraints, as well as situations in which one approach might be preferable to the other. 5-48 Cycle time efficiency and JIT  Ã‚  Ã‚  Ã‚  Ã‚  Walker Brothers Company is considering installing a JIT manufacturing system in the hope that it will improve its overall processing cycle efficiency. Data from the traditional system and estimates for the JIT system are presented here for their Nosun Product: Read MoreAnalysis Of Abc Company s Competitive Advantage Essay1940 Words   |  8 Pagestime consuming as cooperation from suppliers is vital. The primary internal stakeholder’s that are pertinent to project completion are internal employees, management, and ABC Company’s parent company. The primary external stakeholder’s are OE manufacturer vendors and remanufacture vendors, since these suppliers prosper when ABC Company thrives. All of these stakeholder’s are essential resources in order to complete the proposed projects. Department managers will be responsible for gathering informationRead MoreBusiness Analysis : Abc System944 Words   |  4 Pagescompany, or firm there will always need to be some way or system that they use to see and calculate how they are doing cost wise. Some companies think that production is going because of the system that is being used. But in reality a company can either be undercosting or overcosting their total cost that they should be using for a job that they produce. If a company doesn’t break down everything they will never really know if the system is hurting or benefiting the company. So when it comes to companiesRead MoreSwot Analysis : Abc Costing System1605 Words   |  7 PagesPortfolio 2, ABC Nowadays, the development of technology allow the company reduce the cost from direct labour and material cost, but the indirect or overhead cost become significant high. Therefore, price decisions on each product become essential. ABC costing system is a form of splitting overhead costs into different overhead activities. The costs are then allocated to products or projects proportionally by their cost driver activity levels. In another words, this system result the manager toRead MoreSrs for Abc Loan Management System1487 Words   |  6 PagesSoftware Requirements Specification for Placement Automation System Version 1.0 The LNMIIT, Jaipur 23-Jan-2011 Table of Contents Table of Contents ii Revision History ii 1. Introduction 1 1.1 Purpose 1 1.2 Document Conventions 1 1.3 Intended Audience and Reading Suggestions 1 1.4 Product Scope 1 1.5 References 2 2. Overall Description 2 2.1 Product Perspective 2 2.2 Product Functions 4 2.3 User Classes and Characteristics 4 2.4 OperatingRead MoreUsing An Activity Base Costing ( Abc ) System1294 Words   |  6 Pagesactivity base costing (ABC) system will help managers with many of these issues. Although an ABC system mainly identify costing of products and services, it is also capable of assigning costs to other resources. Furthermore, the approach identifies indirect costs in more details and take other activities into consideration when loading costs (Apak et al, 2012). Yaya (2011) added that while periodic financial statement reporting is based on the cost of resources provided, an ABC system also includes cost