Managerial Accounting: ABC in Action - A Case Study Analysis

This report delves into Activity Based Costing (ABC) within the context of managerial accounting. It outlines the fundamental principles of ABC, highlighting how it differs from conventional costing methods. The report emphasizes the benefits of ABC, such as improved cost allocation, enhanced accuracy, and the ability to provide valuable insights for decision-making. It also mentions that ABC helps in cost saving opportunities and helps in customizing the products. The report also explains how ABC helps in the creation of a platform for the competition. Overall, the report underscores the value of ABC in providing a more precise and comprehensive approach to cost management. The report also includes a reference to Efinance and its benefits.

Running Head: MANAGERIAL ACCOUNTING
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MANAGERIAL ACCOUNTING

Running Head: MANAGERIAL ACCOUNTING
Problem 5: Part C
Activity based costing
Activity based costing is the process in which the costs have been calculated and allocated on the
basis of the activity key drivers. An activity based costing method recognizes the relationship
between the costs and the products of the services as well as manufacturers and through this
relationship the costs of the indirect nature are assigned less arbitrarily than the conventional
methods.
Unlike in the conventional system, which is dependent on the volume count whereas in the
activity based costing, it classifies the units produced in terms of the batch level activity, unit
level activity, organization sustaining activity, customer level activity and lastly on the basis of
the product level activity. There are certain ways in which the activity based costing helps in
improving the process of the costing. Such ways are determined in the complete manner. First it
expands the number of the pools by the activity, secondly it creates the alternative basis for the
assigning the costs of the overheads on the basis of the machine hours or the direct costs. The
alteration of the nature of the several indirect costs helps the organization in transferring the
overhead costs from the products of the high volume to the low volume products. Few of the
other benefits that will help the organization after the installation of the ABC costing is it creates
a platform for the competition, provides the cost saving opportunities and helps in customizing
the products. Hence, overall the activity based costing is valuable and worthwhile (Efinance,
2018).

Running Head: MANAGERIAL ACCOUNTING
Reference
Efinance, (2018). BENEFITS OF USING ABC COSTING. Retrieved from
https://efinancemanagement.com/costing-terms/activity-based-costing