Got a tricky question? Receive an answer from students like you! Try us!

Costing and Traditional Costing - Essay Example

Only on StudentShare
Author : jensen38

Summary

From this research it is clear that activity based forecasting as a model is one of the most effective financial tools firms’ management. Activity based costing is a technique that determines the performance and cost of objects of costs, resources and activities…

Extract of sample
Costing and Traditional Costing

The paper tells that costs objects take in activities and activities take in resources. Resource cost outlays are allocated to activities based upon their utilisation of the mentioned resources, while activity cost outlays are allocated to cost outputs with the basis being cost objects in proportion to utilisation of those activities. Activity based costing puts into account causal relationship between costs and activities and between activities and resources. Using activity based costing management technique can considerably improve the financial health of a firm as it presents the real picture or the factsheet, as the activity based costing technique tracks the cost objects utilized in the activities and, thus, the factors consumed in the same activities, to determine correct individual overheads instead of simply linking on the volume. The activity based costing concept as a costing technique takes into consideration both factors. That is, the activity drivers as well as the resource drivers to come up with the product’s price or service. It is essential to realize that the profitability of a firm not only relies on the sales of the service or product, but also on the expenses concerned in the making of that specific service or product. In a given case study of parts of an automotive manufacturing firm located in the nation by the name Norway, it was then proven that just a minute portion of their line of products had a positive economic profit as well as return upon sales. As a matter of fact when the economic profit and operational profitability of their line of products were classified and columned side by side, that was an eye opener. ...
Download paper

Related Essays

Relevance Lost: The Rise and Fall of Traditional Costing
The basic aim of this entire report is to discuss the rise and fall of the traditional costing system with a focus on the reason as to why the traditional costing system provided a vague picture of the product cost. The report also addresses all the issues and the comments passed upon by the senior management officials of JM Ltd while they were being interviewed. Finally the report elaborates the use and advantage of Activity Based Costing and provides an insight as to the suitability and usage of Activity Based Costing system for manufacturing organizations as compared to the traditional…
10 pages (2510 words)
Traditional Absorption Costing versus Activity Based Costing.
In fact Geri and Ronen (2005) indicate that cost accounting systems do not normally command a high ranking in the hierarchy of most organisations, it is the information that they generate that plays a critical role in the performance of organisations and in the decision making process. The range of systems available and the claims made by the proponents of each have led to several debates. However, some of the arguments have some merits in as much as they allow for a better understanding of the methods that are being utilised. Some of the techniques and systems in use are of traditional…
12 pages (3012 words)
Report On Product Costing For Dumbellow Ltd.
Furthermore, the production manager considered re-organization of production activities and also the use of a cheaper component of product Z. though all these proposals are viable; they have various shortcomings which may outweigh their expected benefit. In addition, a comparison of marginal costing and full costing (absorption costing) is dealt with in this report. The advantages of using marginal costing instead of full costing, in decision making, are discussed. In conclusion, the shortcomings of the analyses of various proposals examined in this report are identified. Recommendations on…
12 pages (3012 words)
Product Costing - Traditional Methods and Activity Based Costing
The problem here is that the tools used for production are shared by two parties and that the farm is under the control of several parties. Hence, the establishment of profit and cost centers is essential for rightly measuring the level of earnings and costs. In the system of Activity-Based Costing, the activities are mainly taken into consideration. “Activity Based Costing is a costing system that assigns costs based on activities performed. The activities could be unit level, batch level product level or factory level. All costs related directly to the making of the product is accumulated…
4 pages (1004 words)
The Activity Based Costing System
ta for input may be used differently according to different methodologies of the costing information system which may result in the production of varying outputs of information. A costing system is aimed at generating information to find ways to minimize waste in production. It should be taken care of that the benefits that are derived from the costing system should be higher than the resources used in designing, implementing and maintaining the costing system so that wastage is minimized. It is important to understand the fundamental working of the two systems i.e. The Traditional Costing…
10 pages (2510 words)
Process Costing
In the contemporary period, process costing is one successfully adopted accounting methodology in organizations. Organizations use process costing for effective cost calculation, especially at times when other costing models (job costing or activity based costing) are futile and not producing desired outcomes. Process costing is applied when activities like cost accumulation, cost assignment and cost assessment are to be performed and conducted. When both cost of fixed and variable natures are to be calculated then process costing comes into organizational application. …
7 pages (1757 words)
Critical analysis of activity based costing and traditional costing system
In the efforts to implement the Strategic Management Accounting approach in organizations,modern business enterprises find Activity-Based Costing as an improved costing system by which the problem of large number of indirect costs and their allocation problem can be overcome It has been observed that ABC method is the most sought after innovation in the field of management accounting in the last two decades. The method was originated in the Unites States of America during the 1980s as an improved system to enable better cost allocation by means of classification of more costs as direct (Cooper…
11 pages (2761 words)