The Significance of Activity Based Costing in Cost Management: A Review of Two Research Studies

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Table of Contents
Abstract:......................................................................................................................................................2
Introduction.................................................................................................................................................2
Significance of ABC Model...........................................................................................................................3
The two research studies which will briefly discuss the impact of ABC methods are discussed below...5
a. Australian Case study: The application of Activity based costing in agriculture-based organization:
.............................................................................................................................................................5
b. Research study: The effect of ABC costing model on company’s performance:..............................6
Similarities and Differences in between two research paper:.....................................................................7
Similarities...............................................................................................................................................7
Differences..............................................................................................................................................8
Lesson learned from the research study.....................................................................................................9
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11

Abstract:
ABC is an accounting method which firstly identifies all the overhead activities and assign cost
to it and later these costs is finally assigned to product. This method identifies the relationship
existing between the product, cost and overhead activities which helps in assigning cost to the
product more effectively than other traditional methods. Many studies and research have shown
that accounting systems are not consistently applicable and relevant to every organizations
because of their changeable range of operational activities which are practiced by several
companies or organizations. This report will briefly analyze the two articles which uses activity
cost method of costing over the other traditional methods and will highlight its significance in
making key decisions for any organization.
Introduction
This paper basically discusses two research-based journal articles namely “The Impact of
Activity based Costing on Organizational Performance” and “Implementation of the Activity
based Costing Model for a Farm: a case study which is based on ABC model of costing. It
describes the Activity Based Costing method, explains the main purpose of these journal articles
and also discusses what questions they have set out to explore in these two papers (Mahal, 2015).
Moreover, it also discusses about the differences and similarities in the findings of the above two
papers. Besides these it also explains about the 4 specific lessons or outcomes learned from the
research of the two-journal article that will be advantageous for management accountants in
Australian organizations to learn from.

Significance of ABC Model
The ABC is an accounting method which is more logical in identifying and assigning
manufacturing overhead cost to final products than other older methods of allocating cost . ABC
system identifies the relationship between overhead activities, industrial products and costs, and
with the help of these relationship, it allocates indirect costs to goods less illogically than the
traditional approaches. Some expenses are tough to allocate by this process of cost accounting.
ABC is commonly used in the manufacturing companies as it increases the consistency and
reliability of expenses or cost data (Byrne & Torry, n.d.). Therefore, making approximately true
costs and improved categorizing the costs acquired by the organization during its making
process.
The ABC costing method is mainly used in reducing the overhead cost. It’s often useful in more
complex situation which includes more machines, product or the complex process which is
difficult to sort. The first step of the method is to identify the cost which is to be assigned. It is
later followed by several steps like loading secondary, loading primary pool, collecting
information on activity drivers to assign cost in secondary pools to primary pools and then
finally formulating all the information for making final decision. This method includes several
steps. Yet it is more proper and accurate approach of assigning indirect costs to goods or
products and department in an appropriate manner (Cardos & Pete, 2011). There are other
advantages of the model as it enhances the understanding of cost drivers and overheads and
makes non- value and costly adding events more noticeable, permitting managers to eliminate or
decease them. ABC model also enables efficient challenge of costs of operation to find improved
ways to eliminate and allocate overheads.