Activity Based Costing Case Study

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Activity Based Costing is defined by CIMA, “As an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs.”
The best way to understand this is perhaps by going through the various steps of ABC first which are as follows:
1. Identifying costs – The first and the most important step, it involves identifying the activity for which the costs are meant to allocated or found. It helps in realizing the necessary elements for the process and the cost associated with it.
2. Loading Cost Pools –
(i) Secondary Cost
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It utilizes three techniques to model ABC in restaurants. Discrete-event simulation is used to generate values, which are in turn used to produce confidence interval estimates for the cost in an ABC model. The use of simulation reveals the dynamic behaviour of cost-parameters in a production process. ARM assists the ABC model, by providing values for those cost drivers that are difficult to calculate. The method results in considerable time saving, since it reduces the interview and survey practices for cost driver estimation. It also reduces the probability of making inaccurate estimations of cost drivers. This results into a more accurate and efficient cost accounting information in the restaurant…show more content…
Higher levels of information technology and the updating time of operating data in the information system in real time also facilitated the decision to use ABC system. The top management support was imperative in implementing ABC system in the Jordanian Industrial Sector.
ABC users in the industrial sector had the view that increasing proportions of overhead costs in the overall costs, growing amounts of products and administrative costs and the number of product variants were the most important motivators for the implementation of Activity Based Costing. With rising competition and inefficiencies of the existing cost systems, the need for ABC systems was necessitated.
The barriers to implementation of Activity Based Costing in Jordan primarily included high implementation costs, high costs of ABC consulting, high computer staff man-hours and difficulty in data collection on cost drivers. Employee resistance was not one of the major barriers in Jordan as seen in other countries industrial sectors.
The 21 respondents which still operated on traditional costing systems (TCS) cited that they did not implement ABC as it involved huge switching costs, high consultancy costs and there was lack of expertise available for its successful

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