Advantages Of Activity Based Cost In Accounting

Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.

In a virtual corporation environment, I believe the ABC method to be the most ideal for accurately tracking the costs involved in manufacturing, storing, delivery, and sales. For Super Bakery, Inc. the addition of multiple outsourced companies to their processes meets the criteria of products with manufacturing complexity that requires differing degrees of support services (Kimmel, Weygandt, & Kieso, 2009, p. 876). As a result, I agree with Super Bakery Inc.’s decision to implement an ABC system.

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

In a virtual corporation environment, I believe the ABC method to be the most ideal for accurately tracking the costs involved in manufacturing, storing, delivery, and sales. For Super Bakery, Inc. the addition of multiple outsourced companies to their processes meets the criteria of products with manufacturing complexity that requires differing degrees of support services (Kimmel, Weygandt, & Kieso, 2009, p. 876). As a result, I agree with Super Bakery Inc.’s decision to implement an ABC system.

Activity-based costing is a system of accounting that puts emphases on activities performed to produce products or services (Schneider, 2012). In this costing system every activity is assigned a cost (Schneider, 2012). The goal of activity-based costing is not to allot common costs to products but to measure and then price out all the resources used for activities that sustain the production and delivery of products and services to customers (Mazumder, 2007). Activity-based costing is a cost system that is useful in business because of the fact that it does account for the cost of the products, resources used to produce the product and delivery of the product.

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

Activity-based costing (ABC) methodology is an instrument designed to provide accountants and managers with valuable costing information that will allow them to make sound strategic decisions. It is used as a secondary methodology rather than a replacement for the company’s primarily costing system. The ABC methodology identifies activities in an organization and for each activity it assigns a cost. The cost reflects the actual resource consumption by each activity that has been identified.

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

Data must be collected, verified and entered into the system. ABC does not conform to GAAP so a company will need two accounting books, one for internal and one for external. The data can be very easily misinterpreted, decision making entails identifying which costing data is relevant for decisions on hand.

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing

Activity-based-costing (ABC) system find activities as the drive for each cost, calculate the average cost per driver’s activity, and times budgeted activities for budgeted cost. It is worth mentioning that ABC system is not used to find problems in cost records, or predict future cost based on that.

The ABC method is a good fit for Super Bakery. The job order cost system works for SB because it assigns cost to each account identifying services or products that are profitable. Therefore, access to the company’s profits for each individual job and the profitability of the outsourced activities allows managers to make educated decisions about the company’s financial needs. By using financial reports managers

It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers. The fist five factors (PD, SD, CP, CA, FG) based on the probability. The second dimension of the model seeks to establish decisions. lY axis potential for ABC due to cost distortion---PD.SD.CP.CA.FG lX axis proclivity to use cost information in decision---PF.FE.SC.CR.AF To start management must analyze and responses to two key questions: 1. For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be "better"? 2. If information that is considered "better" is generated by the system, will the new information change the dependent decisions made by the management? After finish these questions managers of company can discuses the ten factors that support or reject implementation. Finally, the combined weighted scores are plotted as a point on one of the four quadrants of a graph.Plotting the Answers--- Use Contingency Grid Method The steps in the

Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.