Activity Based Costing: Benefits and Implementation for Iron Mountain Incorporation

Activity Based Costing 1
ACTIVITY BASED COSTING
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Activity Based Costing 2
Table of Contents
EXECUTIVE SUMMARY.................................................................................................................................3
INTRODUCTION...........................................................................................................................................4
ACTIVITY BASED COSTING AND ITS SALIENT FEATURES...............................................................................5
How the ABC Model aligns with the organizations goals and strategies.....................................................7
Mission and objectives of the organization.............................................................................................7
Corporate strategies adopted by Iron Mountain Incorporation..............................................................7
How the Activity Based Costing model would help Iron Mountain Inc. achieve its strategies.................8
Recommendations to Iron Mountain Inc. on the adoption and implementation of the ABC model.........10
The best accounting tool that Iron Mountain can adopt...........................................................................10
Conclusion.................................................................................................................................................10
References.................................................................................................................................................12

Activity Based Costing 3
EXECUTIVE SUMMARY
This paper emphasis on the determination of costs and benefits that might accrue to
Iron Mountain Incorporation as it applies the application of ABC system in its operations. Under
the traditional costing method, most organizations classified all expenses, except direct
materials and labor after that allocating them to products by the units of direct materials as
well as the number of direct employment and machine hours used in producing a single
product. Adoption of new technologies by firms made direct labor and machine hours become
a smaller portion of product costs though they were still being considered in allocating
overhead costs. This, as a result, led to products being over or under cost as the companies
never understood the effects of the new technologies on their cost structure.
Through adoption of the ABC model, it helps to solve the problem by trying to allocate
job costs based on the actual use of the organization's available resources, whereby only the
activity costs required in producing a given product are allocated to the cost of the product.
Iron Mountain Incorporation should, therefore, develop a cost-effective model that will
help solve the problem of costs. Through the application of this model, the organization will
effectively and efficiently allocate the scarce resources at its disposal thereby helping it
minimize the costs that might accrue as a result of its misallocation. This, in the long run, results
in fewer costs hence increased value and profitability to the organization. This paper, therefore,
tries to explain how the Iron Mountain Incorporation can successfully implement the Activity-
based costing. It also stipulates the appropriate recommendation that will ensure its successful
implementation by the organization.

Activity Based Costing 4
INTRODUCTION
Many organizations adopt different strategies that are available in the market to
efficiently achieve their goal, and for them in to remain competitive, as well as make its overall
goals of cost minimization as well as profit Maximization. One of how these organizations can
achieve this goal is by adopting the Activity-based costing model.
Through this, Iron Mountain will remain competitive as well as avoid the costs that
come along with the different processes and activities as a result of its operations. It can do this
by first identifying its key events and linking each activity and process to the cost factors that
relate to them. Through this identification, different strategies can be adopted that will help
avoid the costly activities and operations or minimize the cost factors accruing to them.
Iron Mountain Incorporation can thus use the ABC model in some ways including Capital
Estimation, equipment justification processes, guidance in selecting areas needing
improvement, incremental pricing business, make or buy decisions, and be pricing large orders
Despite its weaknesses, the model proves to be the best accounting strategy that
different organizations including Iron Mountain Incorporation can adopt to help them achieve
their overall objectives as well as implement its corporate plan.