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Activity-Based Costing (ABC) – An Effective Tool for Better Management

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Added on  2021-06-17

Activity-Based Costing (ABC) – An Effective Tool for Better Management

   Added on 2021-06-17

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Running Head: ACTIVITY BASED COSTING MODEL0Activity Based ModelCorporate Social responsibilities and Sustainability
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ACTIVITY BASED COSTING MODEL 1Table of ContentsIntroduction................................................................................................................................2Part 2..........................................................................................................................................2Answer to question no-A........................................................................................................2Answer to question no-B........................................................................................................5Answer to question no-C........................................................................................................7Answer to question no-D........................................................................................................9Part-3..........................................................................................................................................9Answer to question no-A........................................................................................................9Answer to question no-B......................................................................................................10Answer to question no-C......................................................................................................17Answer to question no-D......................................................................................................18Answer to question no-E......................................................................................................18Answer to question no-F......................................................................................................19Conclusion................................................................................................................................19References................................................................................................................................20
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ACTIVITY BASED COSTING MODEL 2IntroductionCost systems are generally designed to provide the reliable information to themanagers, investors, suppliers to understand the mechanism of control and decision making.Cost systems are generally designed to provide an insight on how particular objects consumeresources of the organisation. Every organisation has its own type of costing system andcannot settle for a universal system.Part 2Answer to question no-AActivity based costing system also known as ABC is a method of costing thatinterprets the activities in an organisation and individual costs are assigned to each activitywith resources to all the products and services according to their actual consumption. Indirectcosts are assigned more into the direct costs in comparison to the traditional costing method.According to Chartered Institute of Management Accounts ABC is an approach of managingthe costs. The activities are monitored, the resource consumption is traced and costs aredesigned according to the final output (Anderson, Hesford, and Young, 2012). The activity based cost method and the traditional costing method, both calculates theoverhead costs associated to the production and then the costs are assigned to the products onthe basis of cost driver rate. The major differences are lined up as follows ParticularsABC COSTINGCONVENTIONAL COSTINGPOOLING OFCOSTThe costs are accumulated into thehomogeneous activities. These activitiesare also associated with the majorUnder this method the costs areaccumulated either via plant-widemethod or through the departmental
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ACTIVITY BASED COSTING MODEL 3activities or processes.cost method, where the cost isdriven by the heterogeneous factorsand are not determined by thesingle key drivers.Basis ofallocationThe costs are allocated to the specificobjects using the cost drivers.With the help of volume basedallocation procedure the costs areallocated.Ranking ofcostsNot every cost is occurred during theoutput therefore, costs are ranked on thebasis of non-linear accumulationmethod (Anderson, Hesford, andYoung, 2012).Generally under this method all thecosts are taken into considerationwhich is driven by the volume orthe product.Cost ObjectsThe focus is mainly on evaluating thecosts of a variety of the objects On the other hand under thismethod the focus is very narrowand revolves around the singleproduct.DecisionMakingThe information provided the ABCmodel is more accurate and relevant innature. The procedure is easy tounderstand and operate on to.At times the costs are eitherovervalued or undervalued whichultimately results into the wronginformation and also becomescumbersome to calculate.CostExpensive in implementation andmaintenance requires huge expenses.This system is relativelyinexpensive as compared to ABC
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ACTIVITY BASED COSTING MODEL 4model.
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ACTIVITY BASED COSTING MODEL 5Answer to question no-B.One of the basic advantages of the ABC model is it provides reliable informationwhich helps in reducing the cost for prevailing opportunities available for MondelezeInternational. Due to the relevant information the managers are able to control many costs offixed nature. This happens because in the conventional method the costs were not visibleclearly whereas under this method the costs are more visible and clear. Activity based costing system works only on the activities. Therefore, it will becomeeasy for the management of the Mondeleze International to decide quickly withoutcomprising on the quality front on each activity carefully. ABC helps in improving thedecision power of the company. ABC is also helpful in fixation of the selling prices as moreaccurate data is available and a better understanding is developed. Due to this factor thedecision making process has become quite easy and sustainable (Tsai, 2016).Further, the activities can be bifurcated into activities which add some value andactivities which do not add any kind of value or worth in general. The ABC model will helpthe Mondeleze International Company to focus on the activities which creates force on valueadding activities. The ABC model though focuses on all the activities which are underlying totrace more overheads (Hicks, 2012).There are some costs which are categorised as non-manufacturing costs for exampleadvertising. Even though the advertising cost does not form the part of the major cost yetcontributes majorly in the business of Mondeleze International. With the help of theadvertising the company can reach at altogether new level. It can attract more number ofcustomers automatically.
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