Relevance Lost: The Rise and Fall of Activity-Based Costing

1090 WordsOct 18, 20115 Pages
Relevance lost: the rise and fall of activity-based costing by: Nitza Geri & Boaz Ronen A Critique After having been exposed on how activity-based costing works, I am wondering why it is not adopted by all of the companies. While it is true that the debate between the traditional cost system and the activity-based cost system seem to be endless, here is paper written by Nitza Geri and Boaz Ronen that introduces another concept and that is global decision-making methodology or GDM. Through their research and case study, they have seen that GDM is an effective alternative to costing methods, which improves the quality of decisions and enhances organization value. Before digging into the matter deeper, I decided to do a…show more content…
ABC is based on subjective arbitrary cost allocations; 2. ABC ignores constraints and does not differentiate a bottleneck rom resources with excess capacity; and 3. ABC regards the relation between the activities and resource consumption as linear, absolute and certain. From these loopholes, the idea of adapting the Global decision-making methodology arises. What the authors have concluded regarding the ABC system is that managers need not to go through all the complex cost data to make improvements for they can resort to non-financial measurements instead. Global decision-making methodology is so new to me. As the authors have defined it, it is a simple practical method for organizational decision-making. It supports decisions on issues such as pricing, make or buy, capital investments, adding new product lines and more. My data bank has been very limited to explore on this system so I have to stick on the data the paper has given. They have laid down the stages, some diagrams and terms which give life to the entire concept. Although all these have helped me understand, they will just be a cause of headache. This is because the paper is becoming too technical. Articles are read to have a support to whatever there is in the books not additional eye stress. Good thing that the authors have given a case study to which GDM is being applied. It is

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