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... ,2003
ABC – a critical discussion
Elaborated by Joachim Kuhnen
M a n a g e r i a l A c c o u n t i n g
F a l l 2 0 0 3
Juhani Vaivio, Ph. ...
Introduction
The individual paper will give brief information about the history of ABC, its nature, usage, and which companies preferably should consider its implementation. The focus of this paper -after defining Activity-Based Costing (ABC) itself- will be on its pros and cons, followed by a final conclusion.
History
ABC was developed in the 1980s by Robert S. ...
Nature
ABC is not an economical theory, but a commercialized management product/
tool. ...
Usage
ABC identifies more specifically the money makers/losers of a company. ...
Target Group
Companies with a high overhead rate, a large product diversity and an
complex, voluminous arising of direct labour should consider an
implementation of ABC: moreover, if costs of errors are high and the
competition is stiff.
Definition
ABC is a costing methodology, identifying various activity centres (that
consume resources and allocate costs to this activities) performed in a firm. ... To identify the various and different costs of
certain products, ABC localizes and allocates factory overhead costs to
products (or services) by using the above named cost drivers (i. ...
Discussion
Initial Thoughts
However, since its introduction in the 1980´s, many companies have not even
thought about implementing ABC, although there is the huge opportunity of
gaining advantages in managerial decisions due to the accuracy of cost
allocation by ABC. May ABC in the end not be the “holy grail” of managerial
accounting? Let us have a closer look at the advantages and disadvantages
of ABC:
Advantages
The ABC-approach of a detailed cost allocation has much inherent strengths.
Its allows the companies, who finally decided in favour of ABC to allocate
occurring costs to many different activity centres. ... For these companies ABC is very efficient to select the problem
areas and promote process improvement.
Approximate Word count = 1617
Approximate Pages = 6.5
(250 words per page double spaced)
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