Product Costing - Traditional Methods and Activity Based Costing - Term Paper Example

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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 and then divided by the amount of unit produced or working hours used in to obtain unit level costs” (Activity Based Costing, 2007). The use of managerial accounting method revealed that the management could exercise its own discretion with regard to assigning costs that link different commodities and processes. The Activity-Based Costing process tries to highlight the fact that if information, such as this, are disintegrated and given to managers then they will know how to create further sound decisions regarding the expenses incurred by the organization. In earlier times, managers have been inconvenienced because of lack of such data. ...Show more

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