ACTIVITY BASED COSTING

Activity Based Cost Management



Activity Based Cost Management

Introduction

The innovation and advancements in the business organizations these days, have tremendously increased the demands of record-keeping as well. It is randomly inquired within the change management, whether the factors being changed, is given adequate valued to warrant its existence or not, by the customer. The significance of the execution of change in the basic drivers of costs is explored in this article.

Many organizations which have adapted the concepts of Total Quality Management (TQM) believe that it does not reward them adequately with respect to better productivity. However, a uniform application of management of change strategies across all functional levels will not have any effects until it is applied to the areas requiring improvement.

History

The new costing approaches emerged as a response to reduce costs and cope up with the unrelenting global competition in 1980s. Activity based costing (ABC) appeared around the mid-1980s, appended with activity based management and a recently added time driven version. Before a quarter of a century of consideration and use, authors attempted to evaluate ABC's success, utilization and contribution. This method was basically introduced to facilitate the organizations in assessing exact costs and levels of activities occurring in the particular organization. According to its definition, the ABC approach allocates costs in proportion of the consumption of each product and service. This method was brought into existence to eliminate the unprofitable or lower-priced products. (Anderson & Kaplan, 2007, 158)

More recent developments reveal strategic cost management (including a value chain analysis) that asserts to align the firm's cost structure with its strategy and pursues cost management decisions to deploy the strategy. (Demmy & Talbott, 1998, 18-20)

In recent years, a sophisticated review of management accounting had been offered by Boer. Gupta focuses on the recent progress of value based costing and performance measurement systems (PMS) and presents a useful background analysis of the development of management accounting. He also adds a useful viewpoint on the new enterprise faced by the management accountants after identifying changes such as distributed operations management, strategic alliance and global outsourcing supported by the core competencies. The information technology, for an integrated supply chain management, enterprise resource planning systems, e-commerce and logistics value chain are the elements which combine together to provide a focus on innovations brought into the field of management accounting. (David Dugdale, 2005, 209)

Contemporary Development

One of the themes of accountants' work is to explore the answer regarding how accounting extends itself and to further consider new objectives such as strategy, manufacturing processes, technology, and markets. It is clear from the study that accounting research and practice is at an intersection where the fundamental distinctiveness of management accounting and control are at stake.

Bromwich and Bhimani suggest that management accounting has an identity crisis where its relevance is challenged by changes in other disciplines such as manufacturing or operations management. Perhaps, operations management may prove not only to alter management accounting but also to be a possible alternative to management accounting ...