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Finance and Accounting Dissertation
Finance & Accounting
Pages 6 (1506 words)
Accounting Dissertation Does the activity based costing play a vital part in financial performance? Introduction: Activity based costing is the assigning of expenses of the measures which is the actual causes of expenses. This costing is not the part of costs on the basis of machine hours as in the traditional method…
Activity Based Costing (ABC) is a managerial accounting system which determines the cost of activities without distortion and provides management with relevant and timely information. It does not represent just a new set of overhead allocation rules or techniques to value inventory. ABC represents a way to look at operating costs and provides methods to dissect the underlying activities, which cause costs to exist” (Dunn 1891). The problem here, which is to be solved, is “Does the activity based costing play a vital part in financial performance”. For this purpose we have to know about the relevance of activity based costing. Here an example is given to know the difference about the activity based costing and conventional costing. E.g. Assume that Product A and Product B are manufactured by the same company. Product A is a low volume item and new one, it requires particular activities such as additional testing, special engineering, and some machine setups because it is ordered in less quantities. Product B is a big volume product produced constantly and needs little concentration and does not require the particular actions. “If this business makes use of conventional costing, they assign or assign every expense to goods on the basis of the amount of machine hours. ...
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