Activity-Based Costing ( ABC ) Essay -- GCSE Business Marketing Course

use Based CostingACTIVITY BASED COSTING AND MANAGEMENT AN OVERVIEW action mechanism Based Costing (ABC) is more relevant than traditional following in companies, where product mix is diverse in batch sizes, physical sizes, microscope stage or complexity, and raw material characteristics. ABC will also erect more decision useful information for the service industry, characterized by kind in range of services provided. If the products in a plant or services provided posses similar characteristics, wither volume based or an legal action based cost driver will provide reasonably high-fidelity be. The strategic goal of ABC is to provide decision useful cost and profitability information for optimum pricing decisions, appropriate product mix, and operating(a) improvements by revolve abouting on activities and cost drivers. (Burch 1994)ABC provides a ne arr approximation of the cost of product, than that provided by the traditional volume based be method. The use of ABC in itsel f will not lead to emend profitability management uses information provided by ABCs to decide the optimal product-mix. The action of the management will lead to improved results.What is ABC ?thither are several elements worthy of note. First is that activities happen because an input has triggered them, e.g., an performance such(prenominal) as purchase supplies is caused or triggered by a requisition, secondly, we impose that resources are consumed by an action mechanism. Resources are the things that an brass instrument pays for, such as people, machines and equipment and facilities. We freighter measure the consumption of resources by employment for example, the activity purchase supplies consumes wiz hour of an employees time per requisition.Activities can be associated with the outputs or cost objects of the organisation examples of a few of the cost objects for service organisations that we control worked with include such things as mortgages, chequing accounts, railc ar movement from point A to point B, or B to C. Cost objects consume activities in much the same sort that activities consume resources consequently, we can measure how much of an activity such as purchase supplies is required by an organisations service output such as engineering training course. The measurement of consumption is called an activity- cost driver. Of monumental note here is that distinguishable cost objects do consume activities in diffe... ...self rather than using the cost of the final products only. The cost drivers that trigger the activity are also identified and monitored. These cost drivers may be different from the resource or activity drivers. In addition performance measures are developed and monitored to judge the efficiency at which the activity is being performed. These measures may be financial or non-financial variables such as cost per units of activity driver, defects per million items produced or time taken per unit of item produced. These me asures and so provide a sound basis to the control the performance of the activity with accurate information about the costs involved.ABM has number of benefits to offer. Here, the focus of attention is an activity rather than a department. A department may have a number of activities which if not segregated may scatter the vision of the managers while making a particular decision. The areas where specific benefits have been derived from ABM are followingA. Determination of product/service costs B. Improvements in performance and activities C. Cost cutting and downsizing D. Other applications. subroutine of benefits are high and harmful effects are less.