The Concepts Of Activity- Based Costing

In college, Erik learned about an alternative costing approach called activitybased costing (ABC). However, the examples he remembered involved manufacturing firms. He wondered whether East Penn could develop an ABC system, with

12). Objectives of the ABC cost system that the standard cost system did not cover was “to improve product cost accuracy and optimize the product mix as quickly as possible in order to help improve GEIs unsatisfactory financial performance. The long-term objective was to evolve toward the practice of Activity-Based Management (ABM). More specifically, GEI anticipated that the ABC data could be used to help its product engineers project the cost impact of product design changes, and to help its process engineers and operations managers identify and prioritize process cost-reduction opportunities” (Brewer et al., 2003, para. 13). ABC costing systems offered a better solution for GEI because, “GEI created its own customized ABC software called ACCURATE to capture the data inputs, interface with the standard cost subsystem, and calculate product costs” (Brewer et al., 2003, para. 20). After the ABC system was implemented, “There was a strong consensus across the plants that the ABC system resulted in both improved product-cost accuracy and greater product-cost visibility relative to the direct labor-based system. In spite of the lack of training, nonaccounting personnel intuitively believed that ABC captured the economics of the business better than the labor-based system. At a strategic level, this contributed to better marketing and product-mix decisions, and at the plant level, ABC improved relations with GEI

volume of production of individual products and level of overhead, activity-based costing allowsfinding individual relationships between volume of production and different overheads. It becomespossible due to combining overheads into cost pools and allocating these cost pools to products inproportion to selected cost drivers that reflect these individual relationships between volume of production and level of overheads.Wilkerson should pool overheads into five groups (cost pools): machine-related expenses, setuplabor cost, receiving and production control, engineering, packaging and shipment. The next step ischoosing most appropriate cost drivers that reflect the relationship between volume of productionof individual products and level of overheads. Machine hours are the most natural cost driver formachine-related expenses. Both setup and receiving, and production control activities are changedin proportion to number of production runs. Engineering cost can be allocated in proportion tohours of engineering work, whereas packaging and shipment activity is driven by the number of shipments

For external reporting, production costs must be assigned to products for both income and asset reporting purposes. For operational cost control, strategic decision making, and performance measurement purposes, however, many organizations also capture and assign costs from the other functions in the internal value chain. What methods are used to measure costs and profits across the value chain, and does their usage vary by function? We identified the most frequently used types of methods as: x Actual costing, x Normal costing, x Standard costing, and x Activity-based costing.

This case study investigated the implementation of activity-based costing (ABC) at Super Fast Engineering Co. Ltd (Super Fast), a large manufacturing company in China. Super Fast formerly is a state-owned enterprise (SOE), which turned public limited company (PLC) later. In December 2001, when ABC concepts were at a theoretical level in China, the company had piloted ABC implementation in its main production divisions in its subsidiaries. (Liu and Pan, 2007).

Activity Based Costing (ABC) focuses on multiple activities in manufacturing; more precisely attributes activity costs to production and identifies idle capacity costs for each activity.

The following write-up gives a summary of how the theory of Activity Based Costing can be applied to practical business problems to obtain information on activities and products for decision making purposes relevant to the various businesses. For the purpose of explaining this concept, the theory of Activity Based Costing is applied in the business of Hot Spring Country Inn, located in the Yang-Ming-Shan area of Taiwan. Based on this method, the inn was able to calculate relevant costs such as lodging costs, hot spring usage costs and meal serving costs per customer.

Traditional system of costing assigns manufacturing overhead based on the volume of a cost driver, such as the amount of direct labor hours needed to produce an item. A cost driver is a factor that causes cost to be incurred, such as machine hours, direct labor hours and direct material hours. According to the Association for the Advancement of Cost Engineering (AACE) International, Activity based costing (ABC) ‘is a total quality management tool for cost and performance measurement of activities, resources and cost objects.’

Activity based cost simply is an accounting method that shows the actions an organization or a firm clearly assigns costs to products. ABC system indicates the connection between activities, costs and production. This system can be used in reduction of overhead costs and it is usually used in complex environment where production processes are shortened. (Investopedia, 2016)

The Smart Grid is an improvement of the infrastructure in the energy sector to have a secure and reliable system that improves growth and security. The grid system works with two integrated systems, one is for electricity while the other is for the information. It is a combination of several technologies that help mitigate problems of electricity. Many people do not understand what Smart grid is and tend to be skeptical on the subject. The people in the energy sector are looking at each other to figure out who will employ the technology first. The Smart grid technology should be employed both at the public and the private

With ever-increasing attitude for product diversity, the practice of using a single overhead rate to allocate costs to products will result in inaccurate cost results. Hence, the necessity arises to invent costing system to suit the needs of manufacturing concerns producing a variety of products. Activity-based costing system is a new technique which is aimed at the absorption of overheads in firms that produce a variety of products.

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,

This paper analyzes the management accounting applications, which try to improve the Activity-Based Costing (ABC) method. First, the paper describes them using the Strategic Management Accounting (SMA) stream. Then it presents the main features of these applications. Second, the paper examines in detail two of these features: the widening of the analysis perimeter and the relevant level of details to analyze the costs. Subsequently, it analyzes several proposals, such as Customer-Driven ABC, Interorganizational Cost Management (IOCM), Resource Consumption Accounting (RCA) and Time-Driven ABC (TDABC). Finally, it describes an experience observed in the IT

In the increasingly competitive business environment, the enterprises who intend to maintain and enhance competitive advantages must build an efficient costing system to control, plan and decide how to improve the profitability and efficiency of the operation. Activity-based costing system (ABC) is such an advanced costing system that satisfies the needs of companies in modern business environment. This essay gives a whole picture about the ABC from five parts: background introduction, definition of ABC, comparison with traditional costing system, evaluation of ABC and conditions of acceptability.

This paper describes the conceptual basis for the design and use of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold.^ Thus, conventional systems do not measure accurately the costs of