Abc Accounting
Activity Based Costing
Introduction
This term paper of advanced management accounting discusses the basic concepts of activity based costing. The major focus of this work is to examine activity based costing in small hospitality businesses in UK. For this purpose, information is extracted from various articles, journals and web to gain in depth insight of the cost accounting concept. In addition to this, it discusses the benefits and drawbacks of the activity based cost method.
Discussion
ABC system is based on the fact that for each there is a sufficiently precise and resides in it, the cost factor, changes in rates of which affect the cost of the function. Thus, the system applies the ABC monitors and cause-and-effect relationship between the cost drivers (database distribution) and the costs, and not conditional connections, as is customary in the traditional calculation (cimaglobal.com, n.d).
Under the traditional technology of distribution of indirect costs, are made apportionments of costs of service centers to production centers in hospitality industry, but the cumulative costs in the production centers are assigned to products or processes usually based on machine hours, man hours or units produced, but these rules do not accurately reflect the resources consumed by different products or processes (Bradtke, 2007, n.d). The methodology of Activity Based Costing is based on the fact that a company to produce products or services need to perform activities which consume resources, so activities are funded first and then the cost of activities are assigned to different cost objects (products, services, customer groups and regions, processes, etc) consuming such activities, in such a way we achieve a much greater accuracy in determining the costs and the correlative profitability.
The ABC in Action Small hospitality management systems of activity-based costing (ABC) located overhead costs to specific activities causing them, thereby providing
Introduction
This term paper of advanced management accounting discusses the basic concepts of activity based costing. The major focus of this work is to examine activity based costing in small hospitality businesses in UK. For this purpose, information is extracted from various articles, journals and web to gain in depth insight of the cost accounting concept. In addition to this, it discusses the benefits and drawbacks of the activity based cost method.
Discussion
ABC system is based on the fact that for each there is a sufficiently precise and resides in it, the cost factor, changes in rates of which affect the cost of the function. Thus, the system applies the ABC monitors and cause-and-effect relationship between the cost drivers (database distribution) and the costs, and not conditional connections, as is customary in the traditional calculation (cimaglobal.com, n.d).
Under the traditional technology of distribution of indirect costs, are made apportionments of costs of service centers to production centers in hospitality industry, but the cumulative costs in the production centers are assigned to products or processes usually based on machine hours, man hours or units produced, but these rules do not accurately reflect the resources consumed by different products or processes (Bradtke, 2007, n.d). The methodology of Activity Based Costing is based on the fact that a company to produce products or services need to perform activities which consume resources, so activities are funded first and then the cost of activities are assigned to different cost objects (products, services, customer groups and regions, processes, etc) consuming such activities, in such a way we achieve a much greater accuracy in determining the costs and the correlative profitability.
The ABC in Action Small hospitality management systems of activity-based costing (ABC) located overhead costs to specific activities causing them, thereby providing
References: Activity Based Costing, Data retrieved from http://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_activity_based_costing_nov08.pdf.pdf Bradtke, D. (2007) Activity-Based Costing, GRIN Verlag Brimson, J. (1995) Accounting for Activities, Editorial Marcombo Dejnega, O. (2011) Method Time Driven Activity Based Costing, Data retrieved from http://www.jaes.reprograph.ro/articles/spring2011/DejnegaO.pdf Reimers, (2007) Financial Accounting, Pearson Education India Stefan, P. (2010) An analysis of Activity Based Costing (ABC) journal literature, International Journal of Business Strategy Data retrieved from http://www.freepatentsonline.com/article/International-Journal-Business-Strategy/237533592.html