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Accounting
The activity-based costing (ABC) is a type of accounting method in which the costs are
attributed to the activities and not to the services or products. The CIMA has defined the
ABC as “cost attribution to cost units on the basis of benefit received from indirect activities
e.g. ordering setting up, assuring quality” (cited by Richa, n.d.). This accounting method is
focussed on the activities that are considered as the main cost object; thereby, making ABC
distinct among other accounting methods. The major benefits that can be drawn from
implementation of the ABC include determining the more accurate cost of product or service,
making better decisions regarding pricing, better control on costing, cost reduction, enhanced
performance, improvement in the objects that impact the cost, enhanced decision-making and
better cost-efficiency by removing unnecessary activities (Richa, n.d.).
There have been a lot of benefits of ABC; however, some researchers have criticized this
method. Robert and Steven suggested that “ABC loses power in large-scale operations, and
can be difficult to implement and maintain” (2005). They have presented valid points on
which I do agree because there are definitely loopholes in every system and the drawbacks of
ABC have been correctly identified and listed by Robert and Steven. The ABC is no doubt a
very powerful method and must be adopted by the companies after applicability of the
changes that Robert and Steven have proposed. They proposed an approach called time-
driven ABC which they have implemented and have successful and better than the previous
ABC approach. In the latter approach, there is a slight variation, i.e. the resource demands are
estimated directly by the managers instead of assigning resource costs to the activities first. I
do agree with their proposed plan due to the fact that this approach can estimate the unit
times for specialized and complex transaction; thereby, providing a better accuracy in cost-
driven rates.
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References:
1. Kaplan, R.S. &Anderson, S.R. (2005, 24 Jan). Rethinking Activity-Based Costing.
Retrieved from http://hbswk.hbs.edu/item/rethinking-activity-based-costing
2. Jain, R. (n.d.). Accounting-Based Costing (ABC)|Cost Accounting. Retrieved from
http://www.accountingnotes.net/cost-accounting/activity-based-costing/activity-based-
costing-abc-cost-accounting/4392

Unformatted Attachment Preview

Accounting The activity-based costing (ABC) is a type of accounting method in which the costs are attributed to the activities and not to the services or products. The CIMA has defined the ABC as “cost attribution to cost units on the basis of benefit received from indirect activities e.g. ordering setting up, assuring quality” (cited by Richa, n.d.). This accounting method is focussed on the activities that are considered as the main cost object; thereby, making ABC distinct among other accounting methods. The major benefits that can be drawn from implementation of the ABC include determining the more accurate cost of product or service, making better decisions regarding pricing, better control on costing, cost reduction, enhanced performance, improvement in the objects that impact the cost, enhanced decision-making and better cost-efficiency by removing unnecessary activities (Richa, n.d.). There have been a lot of benefits of ABC; however, some researchers have criticized this method. Robert and Steven suggested that “ABC loses power in large-scale operations, and can be difficult to implement and maintain” (2005). They have presented valid points on which I do agree because there are definitely loopholes in every system and the drawbacks of ABC have been correctly identified and listed by Robert and Steven. The ABC is no doubt a very powerful method and must be adopted by the companies after applicability of the changes that Robert and Steven have proposed. They proposed an approach called timedriven ABC which they have implemented and have successful and better than the previous ABC approach. In the latter approach, there is a slight variation, i.e. the resource demands are estimated directly by the managers instead of assigning resource costs to the activities first. I do agree with their proposed plan due to the fact that this approach can estimate the unit times for specialized and complex transaction; thereby, providing a better accuracy in costdriven rates. References: 1. Kaplan, R.S. &Anderson, S.R. (2005, 24 Jan). Rethinking Activity-Based Costing. Retrieved from http://hbswk.hbs.edu/item/rethinking-activity-based-costing 2. Jain, R. (n.d.). Accounting-Based Costing (ABC)|Cost Accounting. Retrieved from http://www.accountingnotes.net/cost-accounting/activity-based-costing/activity-basedcosting-abc-cost-accounting/4392 Name: Description: ...
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