Activity Base Costing Essay

336 words - 2 pages

Time Driven Activity Based Costing
Executive Summary
Heryzin Baskerville
National Graduate School of Quality Management

Robert Kaplan introduced Activity Based Costing (ABC) in the late 1980s. It can be considered as the modern alternative to absorption costing, and allowing managers to better understand product and customer net profitability. Kaplan view is that the ABC target state will provide organization leadership with better information to make value-based decisions.
Over the past 15 years, activity-based costing has enabled managers to see that not all ...view middle of the document...

ABC focuses attention on cost drivers, the activities that cause costs to increase. Traditional absorption costing tends to focus on volume-related drivers, such as labor hours, while ABC also uses transaction-based drivers, such as number of orders received. In this way, long-term variable overheads, traditionally considered fixed costs, can be traced to products.
Some considerations that need to be examined prior to implementing ABC are fully
understanding the resource implications of implementing, having enough resources, costs outweighing the benefits, and the need for stakeholder buy-in.
Activity-based costing provides a more accurate method of product/service costing, leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them. ABC enables effective challenge of operating costs to find better ways of allocating and eliminating overheads. It also enables improved product and customer profitability analysis. It supports performance management techniques such as continuous improvement.

Kaplan, R.S. (2001). Introduction to Activity-Based Costing. HBS No.9-197-076.Boston, MA: Harvard Business School Publishing.

Other Papers Like Activity Base Costing Essay

Article Essay

7284 words - 30 pages (IMAPs). The problem of the existing ineffective costing system was resolved by the development of innovative management accounting principles such as: target costing, activity-based costing, activity-based budgeting, theory of constraint, back flush costing and product life-cycle costing (Uyar, 2010). The need for IMAPs was even more urgent when examined against the relevance of the existing traditional volume-based cost allocation system which

Business Essay

443 words - 2 pages cost for the coming period Estimated total units in the allocation base for the coming period Overhead applied = POHR * Actual activity Cost of job = DM + (DL* unit per Hr.) +(DL* Overhead applied) Overhead Applied During the Period Applied Overhead = POHR × Actual Direct Labor Hours ถ้าค่า Applied Overhead มากกว่า ค่า Actual overhead = overappiled overhead ถ้าค่า Applied Overhead น้อยกว่า ค่า Actual overhead

Makalah Le High Steel

4202 words - 17 pages price, cost or volume. In 1992, Lehigh CFO Jack Clark hired Bob Hall to implement activity based costing at Lehigh. On the other hand, Mark Edwards, Director of Operations Planning and MIS explored Theory of Constraints (TOC) based costing system for Lehigh Steel. Clark has to base his costing decision based on the reports of these two costing systems as well as the outcome of standard costing system. Evaluation of Alternatives Standard

Super Bakery Costing Methods

688 words - 3 pages implement and activity based costing plan to help maximize profits and ensure quality products to customers. However, Super Bakery had an additional challenge when implementing a cost system. Because the majority of functions are outsourced, the costing plan needed to help the company maintain control over those outsourced functions Strategies In order to make a costing system functional in a virtual company, Super Bakery needed to put into place

How Managerial Accounting Adds Value To The Organizations

3231 words - 13 pages obtaining and controlling finances ( treasury management ). Majority of the respondent also ranked effective recording of actual transactions, corrective actions/financial control and reviewing and reporting on system of operations as strongly important reasons for management accountant's involvement in management. On the costing technique most of company apply such as activity base costing, cost volume profit, budgetary control system and incremental

Cost Management System

2446 words - 10 pages an hourly rate base on years of experience with a bonus tied to the amount of tax returns that are filed. Employee will receive a commission on any extra services that the employee is able to sell to his client. Any potential customers will pay H & R Block a fee for their services roughly by the number of pages the customer’s returns produces. In an article by Kaplan “Time-Driven Activity-Based Costing”, there are two parameters defined

Wilkerson Case Study Analysis

960 words - 4 pages . Wilkerson’s existing cost system is a tradition value based costing systems. Direct costs are based on the price. Overhead costs are figured proportionately to the direct labor costs at the rate of 300%. 4. Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported


1187 words - 5 pages each of the following questions. Each answer is worth 20 points. 1. The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company’s controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount

Chemical Bank

1291 words - 6 pages bottom line, Metro division proposed fee increase of $5 to an existing fee $25 dollars, ~70% fee revenue share of proposed fee (i.e. $20) and 50% of T&I expenses allocation to Treasury division. This was strongly opposed by Treasury division as they felt, increase in fee cost would result to reduction of customer base, Due bill transaction volume and fee and cost sharing would negatively impact their profits. b) Performance appraisal system

Workbrain Corporation

714 words - 3 pages could more effectively automate hourly employee processes such as time and attendance tracking, activity based costing and employee scheduling. At the same time their clients’ employees could, in turn, request shift changes, vacations, and overtime, administer their benefits and carry out a host of other value added, third party transactions (Armstrong, 2009). This correspondingly allows their consumers to access real time information and allows

The 3 Es Of Om

5180 words - 21 pages ”? Activity base costing (ABC) is a requisite for operational excellence. Most importantly, activity based costing helps you allocate overhead to each product more effectively, instead of using ratios based on a percent of direct labour dollars, pounds per labour hour, or line hours. With ABC, the primary cost driver for each expense group (cost centre) is identified, and then product specific percentages are derived for each cost driver. For

Related Essays

Costing Methods Paper

915 words - 4 pages inception in 1990. Why did Super Bakery’s management think it was necessary to install an ABC system? Super Bakery, Inc. believed it was necessary to install an Activity-Based-System to maximize costs by adopting a more effective allocation method, instead of following a traditional one-stage costing system that would be out-dated for this corporation. A traditional costing system, which allocating overhead costs using direct labor or

Devon Quality Costing System Essay

1831 words - 8 pages . This would become apparent because costs can change from year to year, and if Devon isn’t able to change their prices to correlate with the added costs, they could be losing significant amounts of money through the McDonalds deal in the future. 3. Activity Based Costing 3.1 Briefly comment if activity based costing would benefit Devon Quality Dairy? Activity based costing (ABC) would benefit Devon significantly, because ABC is a cost

Activity Based Costing Case Essay

1207 words - 5 pages Design Setup Shipping Cost Allocation Base No. of Employees No. of Setup Hours No. of Shipments Product A Product B Product C Product Cost Objects KAAU - EMBA Activity-Based Management A method of management that uses Activity-Based Costing information as an integral part in critical decision-making situations including Pricing and product mix decisions Cost reduction and process improvement

Abc System Report

2351 words - 10 pages many managers in company. One important issue that whether activity-based system was more useful than simple system or not. Although it still has some arguments about usefulness of simple costing system and activity-based costing system on allocating cost, there is no doubt that each system had its own benefits and helped managers managing overhead and understanding profitability of products and customers, is a powerful tool for decision making. The