Managerial Accounting Is A Discipline Within The Accounting

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Managerial accounting is a discipline within the accounting community that focuses on providing valuable information to the leaders of their organization. The importance of the community relies on its ability to provide information that is not readily found in traditional financial statements developed in the accounting department for reporting to outside agencies. Activity-based management utilizes information developed using activity-based costing (ABC) to accurately determine product costs. Accurate and detailed information is required for an organization to reliably budget for the upcoming quarter or year. A complete understanding of the significance of activity-based costing and thorough knowledge of budget concepts are critical…show more content…
ABC provides a path to assign the overhead to the product requiring the overhead. In the above scenario, 75% of the production efforts are for product A, so 75% of the overhead can be assigned to product A. “Activity-based costing attempts to overcome the perceived deficiencies in traditional costing methods by more closely aligning activities with products. This requires abandoning the traditional division between product and period costs, instead seeking to find a more direct linkage between activities, costs, and products”(Walther, 2010). ABC is very beneficial to organizations that produce many products. ABC applies all costs (direct and indirect) to a product’s cost. To apply the principles of ABC, and organization must first gather all of the available cost information for the organization. Once this is complete, the organization must identify activities. This is an important step because too many activities will become too large an undertaking to manage while too few will not yield the desired results. Once the activities are identified, the organization must identify traceable costs. These are costs that can be directly related to a product. At this point, one must assign the remaining costs. These are costs, such as janitorial services that cannot be tied to a specific product. Once all costs are assigned, the organization must determine the per activity allocation rates. For instance, if it costs a company $10,000 to
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