ADVANCE MANAGEMENT ACCOUNTING

Advance Management Accounting

Advance Management Accounting

Many companies are switching to activity-based costing (ABC). ABC is just a new way of allocating overhead costs. ABC that it is not the making of products that directly affects costs. Activities directly affect costs. As activities are created or changed, costs are created or changed. So, Activity-based costing systems focus on activities rather than products, which helps to prevent the distorted product costs that can arise from the use of traditional cost systems based on volume. Potential Advantages of ABC versus traditional costing methods Ttraditional costing methods often lack the degree of precision:

It is Not pure or say not objectivity allocates overhead to the cost objects.

Overhead is allocated to the products base on volume-based measure. (Eg: labor hrs, machine hrs.)

There is the relation between overhead and the volume-based measure. Otherwise ABC method:

More accurate cost management methodology

Focuses on indirect costs (overhead)

Trace rather than allocates each expense category t0particular cost object.

Makes indirect expenses direct. Traditional costing methods do not Know what the true cost of their product and service: To determine the true cost for a cost object (product, job, service, or customer), the true cost of product is so important because it can identify moneymakers and money losers, to finding an economic break-even point. In order to discover opportunities for cost improvement, business top need to prepare actualize business plan and improve strategic decision-making.

How does management use ABC information in decisions? This methodology is based on a company's analysis of itself. It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers.

While the scoring system is subjective, it is grounded on factors cited in the ABC as being causal in determining the superiority of ABC over traditional costing. ABC method presents a structure for managers to use in their decisions to arrive at some consensus with regard to the degree to which the factors are present in their company and ultimately to convince themselves as to desirability for implementation of ABC. Although ABC method is not powerfully foolproof method, it should help managers by matching the characteristics of their company, its products, and the costing system used with the factors that make ABC most effective.

Strategic Management Accounting

During the last years issues of strategic management accounting have received widespread attention in the accounting literature. Adapting to the changing needs of business in the 1990's is one of the main challenges facing management accountants today. One dramatic change, in how many organisations operate, is the growing shift towards strategic alliances and partnering agreements with suppliers. However, there is still no comprehensive framework as to what constitutes strategic management ...