ACCOUNTING ANALYSIS

Accounting Analysis

[Name of the Institute]

To: Dear Sir, (CEO)

From: Accounting Manager

Subject: Activity Based Costing

Activity Based costing

Activity Based Costing is the system of managerial accounting in which it is estimated for the cost of the products and the services by assigning the cost of overhead to the direct cost. In this method of costing the cost of each activity of a firm is assigned to all the goods and the services that company or the firm on the basis of the consumption resources activity of these goods. It is marked as the disappearance from the practices that have been shared by the costs of overheads equally shared or becoming a part of the estimation of the overall profit rather than product pricing component.

Advantages of Activity Based Costing

By implementing the Activity Based Costing we can have the following benefits

We can make scientific and possible reasonable pricing, by reducing the prices of the goods and the services that requires less time or the activity, and also through increasing the price of the goods that requires more activity or the firm, resources for performing activity.

We can also determine the cost of the particular product more accurately that would be reliable as the activity based costing approach focuses on the cost and the effect linkage between the cost and the activities performed with respect to the production of the goods.

Under the approach of the Activity (Lawler, 2009) Based Costing, we can fix the selling price of the products fairly and correct as the cost of the overheads is allocated that is based on the activities that are the cost drivers.

Overheads controls that consist of the costs for instance the variable and the fixed cost becomes easy to control and monitor these activities. The cost and the activities linkage can be easily rectified by the Activity Based Costing and therefore providing opportunities for the control overheads costs.

We can get much useful information which can be found by the making the decisions about the different productivity lines.

There may be the fair allocation of the overheads as by inhabiting the substantial portion in the components of the total cost.

Through Activity Based costing we can identify the wasteful products of the business and due to which our business is bearing the unnecessary cost therefore we can use the resources efficiently. Through Activity Based costing our product and the services that we are offering can be improved.

We can better understand the overhead cost and therefore, we can have the more accurate costing method for the products, channels of the distribution and the customers by using the Activity Based Costing.

Activity Based Costing approach is easy to understand for everyone and it utilized the total cost of manufacturing the product or the performance of the activity instead of the total cost.

It also identifies the wasteful items and the unnecessary cost of the product and also provides the support to the (Yahya-Zadeh , 2011)scorecards and the management performance system.

It will also enable the supply chain and the value streams by facilitating the ...