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Abc The Proponents Of Activity Based Costing Claim That This Approach To Costing Provides More Accurate Product Costings. On What Do They Base These Claims

945 words - 4 pages

Faces to the competitive business environment, many manufacturing and service organizations operate have already significantly changed in the past 30 years. These new changes have rendered traditional cost accounting methods lack of managers' demands for correct, detailed, correlative information for decision making such as strategic thinking, production promotion plan and cost control etc.. Also the new modern methods have effectively reduced the correlative importance of direct labor cost as production costing. As a result, management accounting is trying to use more logical and efficient way to admeasure costs in the new fields.According to Larry Sawyer said, the tenth commandment of ...view middle of the document...

The system should be in the position of easily providing information for all three objectives of external financial report, product cost, and operational control.In their continuing effort to achieve advantages over competitors, managers have learnt that cost is no longer the overall factor in determine a product's profitability. Managers that concentrate at managing costs effectively have not been successful. According to Otis Port and Zachary was quoted, "If you cut through the buzzwords, the strategic issues are time to market and quality, plus flexibility in responding to changing customer needs and market forces -- and then cost." (Otis Port, Zachary Schiller, and Resa W. King 1990) Therefore quality and flexibility are playing a significant role in determine profitability in today's market.ABC assigns costs to activities and products based on how the costs (resources) are actually consumed by the process or product. It then assigns cost to cost objects. Cost drivers, then, are defined as " the factors that affect the cost of an activity or conditions that cause specific costs to be incurred." (Patrick L. Romano 1988) When costs have been connected with activities, costs are then charged to products based on the amount of each activity consumed but not based on some subjective allocation device. The cost of an individual product is the sum of both the costs that can be directly traced to the product and the indirect costs assigned to the product on the basis of the activities consumed.For example, ABC acknowledges each printing job consumes different amounts of labor, materials, printer working time, and supervisory, administrative and management time as well as portions of other costs, historically lumped into overhead. ABC identifies the separate costs so they can be charged back accurately to individual projects.ABC amounts to quantifiable...

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