0
Activity-based costing tries to take the nonuniformity of resource consumption across products into account in the assignment of costs.
What else can I help you with?
How do traditional cost assignment systems assign direct costs?
Traditional cost assignment systems typically would assign directly to the cost objects the costs of those resource consumptions that can be economically traced directly to units of output requiring the resources.
What is one disadvantage of traditional cost assignment systems?
high-volume, relatively simple product will end up overcosted and subsidizing a subsequently undercosted, low-volume, relatively complex product, resulting in inaccurate unit costing and suboptimal product-line pricing decisions
What factors contributed to the emergence of activity based costing in the 1980s?
The Traditional costing system used to allocate/assign overhead costs to products by using only volume based cost drivers. In fact, these traditional systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overheads costs were relatively small and the distortions arising from inappropriate overhead allocations were not significant. Danish Ayub
Where are cost accounting systems used?
Cost accounting systems such as activity-based costing (ABC) systems are used primarily in manufacturing environments, but increasingly are being applied to service companies, such as banks, real estate firms, and insurance companies.
Who develop activity based costing?
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 evolved from a manufacturing product costing orientation to a management philosophy of activity management applied in industries and organisations other than manufacturing.
What are the two basic types of costing systems?
The two basic types of costing systems are job order costing and process costing. Job order costing is used when products are made based on specific customer orders, allowing for tracking costs for each individual job. In contrast, process costing is applied in industries where production is continuous and units are indistinguishable, allocating costs to processes or departments over a specific period. Each system serves different manufacturing environments and provides insights into cost control and pricing strategies.
What are the advantages and disadvantages of a recipe costing software?
An advantage to having recipe costing software is the fact that businesses will know exactly how much it cost to produce their food. One disadvantage to recipe costing systems is the fact that they can be costly.
What are the advantages and disadvantages of a recipe costing software program?
An advantage to having recipe costing software is the fact that businesses will know exactly how much it cost to produce their food. One disadvantage to recipe costing systems is the fact that they can be costly.
Define functional based cost management systems?
Functional-based costing considers total expenses incurred at all levels. Functional-based cost budgets for departments, for example, will include costs incurred by every activity performed in that department. In functional-based costing, accountants assign fixed costs such as manufacturing overhead to output on a per-unit basis.
Can a company use both job-order and process costing systems?
Yeh totally no doubt
What effect do you think the existence of a high proportion of fixed costs has on the desirability of using ABC methods?
The existence of a high proportion of fixed costs will increase the desirability of using ABC methods. Under the traditional method, fixed costs remain the same regardless of the level of activity on the number of units produced. However, activity based costing is a method that measures cost of a product/service based on the activities preformed to produce the product/service. Under the ABC system, an effort is made to account for as many costs as possible as a direct cost of production. The costs that are incurred are accumulated by activity and then transferred from the activities to the products produced based on how much consumption was used by each activity for each product manufactured. The activity costs are then transferred to products as they move through the production process. Any fixed costs that are left over are not assigned to the cost of the product and will be allocated in the traditional process. Because activity based costing system classifies more costs as direct than traditional systems do, managers have greater confidence in the costs of products and services reported by ABC method. And if managers supervise and focus on activities, are managed effectively, a company will experience lower unit costs and will become more competitive.
What is the difference between process costing and operation costing?
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 or the quality of materials.
