Activity Based Costing

When it comes to a company, there are many factors that must be taken into consideration. For instance: location, products/services, branding, advertising, marketing etc. But even with all that taken care of how will the managers, auditors and even employee’s know if they are being successful or not? This is where strategies of accounting come to play. A very successful method is Activity Based Costing. This method has continued to help companies by keeping track of their spending and figuring out ways to improve their flaws. The purpose of this essay is to give a three hundred sixty degree knowledge of ABC. Starting from an in depth description of the method, how it has evolved from the past and how it has provoked other alternatives to assist it. Activity based costing is a strategy used by managers to determine where to spend money. This contrasts the traditional costing system (Marx, 2009). Activity based costing provides a lot more benefits for the company and displays a more clear look at how the company is doing economically (Cooper, 1991). It allows managers to see where to spend money, and on which resources to focus their spending (Cooper, 1991). Managers should cut back spending on resources, and at the same time increase the output of their products (Cooper, 1991). There are several benefits to using the activity based costing method, and that is why it is growing in popularity. Though, in order for managers to optimize the benefits that activity based costing can provide, they will need to fully understand how it works. Activity based costing in most basic terms is spending money on specific recourses depending on the activity they serve the company economically (Cooper, 1991). This is in contrast to the standard per-unit costs. A per-unit cost is not a beneficial to know, appose to knowing how much money a specific production line would bring in per year (Cooper, 1991). Knowing how much each section brings in will allow the managers to know how