ESSAY ON ABC COSTING

Essay on ABC COSTING

Essay on ABC COSTING

Introduction

Activity-based costing (ABC) is an accounting procedure that permits enterprises to accumulate facts and numbers about their functioning costs. Costs are allotted to exact activities—such as designing, technology, or manufacturing—and then the undertakings are affiliated with distinct goods or services. In this way, the ABC procedure endows a enterprise to conclude which goods, services, and assets are expanding their profitability, and which are assisting to losses. Managers are then adept to develop facts and numbers to conceive a better allowance and gain a larger general comprehending of the costs that are needed to hold the business running smoothly. Generally, activity-based costing is most productive when utilised over a long time span of time, as are against to shorter-term answers for example the idea of constraints (TOC).

Activity-based costing first profited notoriety in the early 1980s. It appeared as a ordered alternate to customary cost administration schemes that tended to make insufficient outcomes when it came to assigning costs. Harvard Business School Professor Robert S. Kaplan was an early support of the ABC system. While mostly utilised for personal enterprises, ABC has lately been utilised in public forums, for example those that assess government efficiency.Integrating ABC and SCM, Lin et al. (2001) describe ABC as a complex costing system that assists managers in making important strategic business decisions. They emphasise that every aspect of decision making process in SCM requires cost data. This highlights the significance of the relationship between ABC and SCM. Given the current intense global competition, they also believe that the extent of the importance of cost data in SCM filed as well as the integration between ABC and SCM will increase in the near future.(Brierley,2006)

Discussion

In the rapidly developing and globalizing world, markets become much intense than before, therefore, organizations started to seek for methods where they can do more with less. The successful companies not only compete against domestic competitors, but also the companies over the world. For example, after China entered into World Trade Organization, they opened their domestic market for the western companies in different industries such as car manufacturing, farm products and so on. Due to the product enrichment, the customers in China have more options than ever, and they started to seek to find the high quality goods. In order to compete in such competitive business environment, companies became more customer-driven, therefore, their costs increased.

The above situation is not only faced by China, but all over the world. The significant changes in the world's market mechanisms influenced the development of a new managerial accounting methodology, called Activity-Based Costing. A powerful tool for measuring performance, Activity-Based Costing is used to identify, describe, assign costs to, and report on agency operations . Activity-Based Costing, ABC, is simply assigning costs to activities based on how the costs are consumed by the ongoing processes in an organization. In other words, costs are charged to processes or products based on the amount of each activity within that process, therefore, it's understood ...