Once costs of the activities have been identified, the cost of each activity is attributed to each product to the extent that the product uses the activity. In this way ABC often identifies areas of high overhead costs per unit and so directs attention to finding ways to reduce the costs or to charge more for costly products. Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns as a chapter in their book Accounting and Management: A Field Study Perspective. They initially focused on manufacturing industry where increasing technology and productivity improvements have reduced the relative proportion of the direct costs of labor and materials, but have increased relative proportion of indirect costs. For example, increased automation has reduced labor, which is a direct cost, but has increased depreciation, which is an indirect cost.
(Activity Based Costing) Introduction: Activity Based costing is the method of accounting that identifies the activities that are performed by the firm and then allocate the cost on the basis of the activities performed by the firm. ABC costing system is usually used in most of the manufacturing companies as it enhances the cost classification and made the allocation of indirect easy (Heisinger, 2009). ABC Costing system is used in product costing, customer profitability analysis and target costing. This present case is about the US Bright product company which produces cakes and pastries. They use Activity Based Costing as their costing system.
First we will talk about activity based costing and we will start by giving the definition of it ; Activity based costing means refining the costing system by concentrating on individual activities as essential or primary cost object or tool . ABC system has a lot of benefits and we will discuss them now, ABC helps in understanding overhead much better and the percentage of prim cost and overhead is the same in both ABC and traditional system; but what gives advantage of ABC over traditional is by using ABC system it helps to know the detail of overhead so that it can identifies how is the activity to avoid. One of the benefits of using ABC system is product and price mix decisions; one of the most powerful
Hence, the ABC has a little impact on time, a significant impact on quality, and a substantial impact on cost (Gering, 1999). Difficulties and challenges The main problem that are always facing by the service company in selecting ABC system is the willingness of the top manager. They think that ABC system requires high implementing cost and time consuming (Ashford C. Chea, 2011). For example, they consider about the adoption time of all staff towards the new accounting system and the development cost of the new system. In addition, it is important to evaluate the scope of and the role for the ABC system if the implementation is to be successful (Clarke and Tracy, 2001).
Once operations begin, cost accounting reveals how efficiently the work is being done, where the strong and weak spots are, and how to improve performance. The cost of making a product or providing a service is one of the most critical in a firm’s ability to meet the competition. With cost information to support the decisions, management can issue directives, perform follow up activities, and obtain the operating results that ensure prosperity and growth of the enterprise which I will elaborate more on the second question. In the first question, I may or may not have directly or indirectly answered the second question but I will try my best to elaborate on a few key points as to how cost accounting can help organizations develop innovative new products and achieve continuous improvement. Cost accounting can be viewed as the intersection between financial and management accounting.
This lack of essential information about product expenses shows up, that we need more detailed information to control accountability at product level. This issue limits the number of alternatives. Since most of our costs are overhead, it is very important to allocate the costs as accurately as possible for
By looking further into costs the awareness should increase (Antikainen, Roivainen, Hyvärinen, Toivonen, & Kärri, 2005). Knowing what each activity costs opens up an opportunity that allows managers to improve and therefore reduce the cost where possible (Cooper & Kaplan, 1991). Overall, changing the system at G.G. toys could enhance their performance as ABC-costing system has been linked to both the product being of better quality and the cycle time being shorter (Ittner, Lanen & Larcker, 2002). Cooper and Kaplan (1991) discuss that having an ABC costing system could have a financial gain for companies.
Daw Hla and Susan, Peter Teru Says that Accounting Information System is computer-based application system, and its control and enhance the corporation of an organization. It is Managing an organization and implements the internal control system. The role of accounting information system is a crucial process. The qualitative Characteristic of any accounting information system is maintained by the sound internal control system. The primary function of AIS is assigned the qualitative value of economic events.
The main important purpose of the accounting information system is to promote the activity of the enterprise and to form a reliable and real picture of it. In addition, the accounting information system promotes the activity of the enterprise effectively by preparing up-to-date information statements, providing as much information as possible so that the data should be understandable all users not only for the experts(bookkeepers) and tracking liquidity. Nowadays accounting software is a programme which makes accounting work processes easier and faster and which makes it possible to meet the information demand of the management. It also can support the accountants’ work, helping to compile reports by in helping to compile reports by recording and processing the events concerning the