Abc Is a Better Principle Than Traditional Cost System

1271 Words Oct 29th, 2011 6 Pages
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Activity-based costing (ABC) is a better principle for companies than a traditional cost system. Discuss.

Student Name: Zhang Ruoshi Assignment Title: Essay Module Code: LZ118-122 Module Teacher: Rebecca

Manufacturing is one of the company 's core processes, while accounting is the key impact for enterprise to produce good products. Activity-Based Costing (ABC) is a new method of costing system. This method can help a company to allocate costs more accurately in today 's complex business world. In contrast to traditional cost system which is not suited to new manufacturing environment situation, ABC has taken the place of tradition system and been widely used in some countries,
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They can contrast the profits which are brought by a variety of customers, products, brands or regions. Afterward, they can choose the most profitable ones (Cooper and Kaplan, 1991 p.130-135).

Innes and Mitchell (1995) explored the adoption rate of ABC and how well does this system work in some large companies of UK. Innes and Mitchell (1995) undertook a survey of ABC practice in 1000 of the largest companies in the U.K. which are listed in The Times 1000 which was published in 1994. Nevertheless, the results showed that ABC system’s impact is often limited and it has also been refused by a high percentage. The survey also considered both the company sector and size. Most of the companies have to make decisions on its use. There is still possibility for considerable increasing in its adoption. ABC is an on-going development, it gives considerable chances for researches who are interested in changing to pursue work different kinds of management accounting’ area. (Innes and Mitchell, 1995) This survey proves that ABC has been adopted by some U.K. companies and these companies are trying to use ABC to make big progress. On the other hand, the results also show that, at a practical level, opinions on ABC are differed among the U.K.’s large companies.

In contrast to the survey of largest companies in the U.K., Douglas (1999) investigated how to make ABC work in the small and mid-sized
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