Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Topics: Management accounting, Activity-based costing, Cost driver Pages: 15 (2310 words) Published: September 19, 2014
Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Report on the Reason of Why the Companies Should
Implement ABC Rather than Traditional Cost System

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Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Acknowledgement
I would like to express my deepest appreciation to all those who provided me the possibility to complete this report. A special gratitude I give to, Ms. Tanzina Haque, Associate Professor, University of Dhaka, whose contribution in stimulating suggestions and encouragement, helped me to coordinate in every problem especially in writing this report.

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Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Executive Summary
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 and scorecards. It is because; the company should implement ABC rather than traditional costing system.

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Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Table of Contents
Acknowledgement ........................................................................................................................................ 2 Executive Summary....................................................................................................................................... 3 Introduction .................................................................................................................................................. 5 Objective ................................................................................................................................................... 6 Methodology of the Report ...................................................................................................................... 6 Activity Based Costing (ABC) ......................................................................................................................... 7 Benefits from ABC that management can obtain ......................................................................................... 8 Reason of using the Activity Based Costing rather than the Traditional Cost System ................................. 9 Steps to Implement ABC ............................................................................................................................. 10 Recommendation........................................................................................................................................ 13 Conclusion ................................................................................................................................................... 14 References & Bibliography.......................................................................................................................... 15

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Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System

Introduction
Activity Based Costing (ABC) is a system based on activities that links organizational spending on the resources to the products and services produced and delivered to customers. This system is more beneficial than the traditional costing system. It is because; in the Activity Based Costing (ABC) the company can be able to get more benefits than it can get from the traditional costing system. On the other side, in the Activity Based Costing (ABC) the company can...

References: Cokins, G. (1998). "ABC Can Spell a Simpler, Coherent View of Costs." Computing Canada.
Cokins, G. (1998). "Why Is Traditional Accounting Failing Managers?" Hospital Material
Management Quarterly.
Daly, L. (2001). Pricing for Profitability: Activity-Based Pricing for Competitive Advantage.
Dolan, P. (1999). "Getting Started With ABC." Supply House Times.
Garrison, H. (1999). Managerial Accounting. 9th ed. Boston: Irwin McGraw-Hill.
Hicks, T. (2002). Activity-Based Costing: Making It Work for Small and Mid-Sized Companies.
Horngren, G. (1999). Introduction to Management Accounting. 11th ed. Upper Saddle River, NJ:
Prentice Hall.
Karolefski, J. (2004). "Time Is Money: How Much Are Your Customers Costing You?" Food
Logistics.
Lindahl, W. (1997). "Activity-Based Costing Implementation and Adaptation." Human Resource
Planning.
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