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

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

Only on StudentShare
Author : leokuvalis

Summary

Product Costing - Traditional Methods and Activity Based Costing Name of Author Author’s Affiliation Author Note Author note with more information about affiliation, research grants, conflict of interest and how to contact Product Costing - Traditional Methods and Activity Based Costing 1…

Extract of sample
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. ...
Download paper

Related Essays

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…
11 pages (2761 words)
Activity Based Costing (ABC)
Historically, ABC started to become popular as an alternative approach to traditional cost accounting about three decades ago, where the latter has become increasingly proving its irrelevance (Emblemsvag, 2010). The increasing automation of production as compared to being labor-intensive, the multiple product lines compared to small number of products being produced, and the increasing overhead cost of companies are factors which are said to have contributed to the popularity of ABC (Emblemsvag, 2010). …
12 pages (3012 words)
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)
Activity Based Costing vs.Traditional Approach (Sober Plc)
Financial information forms the basis for much of the decision-making for organizations, and the need for more accurate information continues to grow. Ignorance of the manufacturing realities may put an organization at risk of losing its competitive edge, which inevitably results in loss of profitability and crippling losses. Traditional volume based costing techniques present numerous challenges to organizations, especially in the modern manufacturing environments, where the overhead costs continue to rise. In addition, introduction of new technological advancements in the production…
4 pages (1004 words)
Activity-based costing (ABC) in service industry
However, it has often been argued that implementing such pricing strategies might prove to be quite challenging in case of service oriented companies in comparison to the product rendering companies owing to the greater involvement of intangible assets and liabilities. In this regard, various models have been developed with the intention to assist in determining the accurate costs incurred in following the entire process of delivering services to the ultimate customers. For instance, Activity Based Costing (ABC) can be regarded as an effective cost determination system that involves breaking…
6 pages (1506 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)