Comparing ABC Costing with GAAP: A Case Study of Ballast Nedam

This assignment solution addresses the differences between Activity-Based Costing (ABC) and Generally Accepted Accounting Principles (GAAP). It explains how ABC assigns costs to overhead activities and products, contrasting it with GAAP's broader financial reporting standards. The solution highlights key discrepancies, such as the allocation of manufacturing and non-manufacturing costs, and the use of cost pools versus departmental rates. Furthermore, the assignment includes a case study on Ballast Nedam, a construction and engineering company, illustrating the practical application of ABC costing within the construction industry, its benefits in cost management, and its relevance to the business operations. The references cited provide additional context and support the analysis.

Running head: SELF PLACED 1&2
Name of the Student
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Author note

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Answer to Q1:
Activity based costing is a management accounting tool that is used to identify and
assign costs to overhead activities and then assigns costs to the products. It recognises the
relationship between costs, overhead activities and manufactured products. On the other
hand, GAAP refers to the collection of the various concepts and principles which help in the
preparation of the accounting and financial statements (Mahal and Hossain, 2015). It refers to
the combination of the accounting rules and standards which are aimed at promoting
transparency and consistency in financial reporting.
One of the main reasons for the non-compliance between the two is that ABC costing
methods does not allocate any kind of manufacturing costs to the products. The theory behind
this is that if the costs is not affected by the activities of the business, then these costs are
irrelevant to decision making. GAAP does not follow this. Secondly, ABC costing method
allocates some particular non-manufacturing costs to the products, this procedure is not
followed as per the guidelines of GAAP. ABC doctrines prescribes that all costs which are
not connected to the product should be encompassed in product cost, this practice is not
followed in case of GAAP (Ifrs.org. 2018). Lastly, ABC costing methods use numerous cost
pools in order to assign overhead expenses to products, whereas in the case of GAAP, a
comprehensive departmental rate is used to allocate costs as part of one big ‘bucket’.
Moreover, ABC has a very limited scope in any business organisation, but GAAP occupies a
central position in a business organisation.
Answer to Q2:
Ballast Nedam is a renowned construction and Engineering Company. It has its
headquarters located Nieuwegein, Netherlands. It is one of the top three construction
companies in the country of Netherlands. The company primarily offers civil engineering,

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dredging services and construction of houses and industrial buildings (Bnmc.ballast-
nedam.com, 2018). It is mainly concerned with the construction of the industrial buildings
and warehouses. The company engages in various kinds of activities such as building
projects, infrastructural projects, and renewables, like wind and solar machines, different
regions, road specialities, mechanical and electrical items (Kumar and Mahto, 2013). It also
engages in various kinds of international projects such as construction projects in Middle
East, East Asia, South and Central America and is now increasingly focusing itself in the
Caribbean. Africa and the other parts of Asia. The company also engages in the marketing of
various kinds of products which are essential for the construction business such as sand,
gravel, concrete and sewer fittings.
Being in the construction business, the company follows ABC form of costing. They have
noteworthy overhead costs, such as purchase of construction securities, purchase of large
equipment’s, machinery and skilled personnel. They also typically have a diverse range of
multifaceted construction tasks, for instance, projects regarding warehouse construction and
exterior renovations of officers of different sizes or the other miscellaneous range of
industrial projects. Through the use of activity-based costing, project head, estimators and
supervisors can allocate costs to the different construction objects and projects. Activity
based costing helps in providing efficient cost management, judicious utilization of the
excess capacity and also ensures reduction of the costs.

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References:
Bnmc.ballast-nedam.com. (2018). Products | Marine & Civil. [online] Available at:
http://www.bnmc.ballast-nedam.com/products/ [Accessed 28 Jun. 2018].
Ifrs.org. (2018). IFRS. [online] Available at: https://www.ifrs.org/ [Accessed 28 Jun. 2018].
Kumar, N. and Mahto, D.G., 2013. Current Trends of Application of Activity Based Costing
(ABC): A Review.
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.