Describe the likely stages involved in the design and operation of an Activity Based Costing system?
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Problem relating to the implementation of activity based costing and activity based management system?
A key feature of activity-based costing is realizing that the value of a product changes as it is being produced. This would mean that raw materials should cost less than the finished product. For example, a dress starts out as just a piece of material, but after it is sewn together, it has more worth than when it started.
Hi Activity Based Costing could be seen as the 'Cause-and-Effect' realtionship in the costs. If we extend this logic then we can segregate all the costs in four sections. a) Product Costs b) Customer Costs c) Business Sustaining Costs d) Cost available to use In this sense the Activity Basedd Costing gives an accurate costing picture.
Advantages of Activity Based Costing System: Activity based costing system has the following main advantages / benefits: More accurate costing of products/services, customers, SKUs, distribution channels. Better understanding overhead. Easier to understand for everyone. Unit cost rather than just total cost. Enables costing of processes, supply chains, and value streams
What are the differences between activity-based absorption costing system and traditional absorption costing system?
There are two type of costing are involved in a product or service. ie Direct cost and Indirect cost. In this two head there are two sub type costing are involved. ie Varriable cost and Fixed cost. Here the the total varriable cost are involved in a product of cost is called marginal costing. In another way the totoal cost -fixed cost is called marginal costing By M.Magesh 099948 33079
How do activity-based costing and the traditional cost system treat idle capacity costs differently?
Process costing and operational costing systems are used in accounting, usually in relation to the manufacturing sector. Both refer to the costs of production, but they differ in terms of methodology and application. Process costing is used in industries where the products are all basically the same, such as bricks or cement. Operational costing, on the other hand, is used in industries where the products are similar but may have some variation in terms parts…
Activity-based management and activity-based costing (ABM/ABC) have brought about radical change in cost management systems. ABM has grown largely out of the work of the Texas-based Consortium for Advanced Manufacturing-International (CAM-I). No longer is ABM's applicability limited to manufacturing organisations. The principles and philosophies of activity-based thinking apply equally to service companies, government agencies and process industries. The acronym itself has evolved from ABC to ABCM (activity-based cost management) to ABM, and the application of…
ABC....why? The problem with Traditional costing is that it can easily over-allocate overhead to cost objectives. Traditional costing is production volume driven so its would be easy but yet inaccurate to assign a Skittles production with more overhead than say a the division within the same company that makes custom pies. Activity based costing accounts for the multiple costs that go into making a product or service thus making allocation of overhead more efficient and…
In traditional costing system overheads are spread over volume of production by using spread rate which is called blanket rate or absorption rate while in ABC costing costs are allocated on the bases of actual activity performed in specific cost centers so this is a accurate method for allocating costs according to activity performed and not with just any estimated rates
In a simple answer, yes. Activity based costing can be a valuable tool for any environment that either makes something (manufacturing) or delivers something (service - such as IT outsourcing). One option would be to use driver data mapping services to specific customers to calculate "actual" cost estimates by service by customer in addition to tradional "activity" analysis.
In Target costing system, comapnies tries to achieve target prices by reducing those parts of activity which are not increasing the value of product. Life cycle costing is a concept in which companies tries to read the overall process of development of product life cycle and tries to minimise the cost at area where it is not required or not increase the value of product.