Professional Documents
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Activity Based Costing
Activity Based Costing
Abstract:
Gone are the days when activity-based costing was just for manufacturers. Now, it has
crept into service industries such as healthcare, banking and insurance. When the Hospice
of Central Kentucky (HCK) was feeling the squeeze of cost increases while 3rd-part
reimbursements remained constant, it thought that the only solution was to cut costs. But
ABC revealed other options. HCK's management found that ABC could provide accurate
cost information, and it used 6 steps, that can be applied to any organization, to develop its
ABC system.
Abstract:
Manufacturing industry is still an important part of the Irish economy, however it faces
significant threats in an increasingly global environment. An essential part of ensuring the
long term competitiveness of Irish firms is to configure and manage the manufacturing,
sales and distribution processes in a way which reflects correct product and process choices.
In this regard, Activity Based Costing/Activity Based Management (ABC/M) techniques have
an important role to play. In particular, ABC/M supports a more strategic approach to cost
management, product pricing, channel selection, product design and other important
decisions
Abstract:
As more powerful ABC (activity-based cost) systems become more available, the
temptation to design overly complex ones will increase. These maximalist systems will
rapidly become obsolete if they are not maintained continuously. In contrast, an integrated
architecture approach will allow systems to emerge that are based on intelligent design
principles. Splitting apart the strategic costing and operational improvement functions can
improve the quality of system design dramatically.
Activity-based costing
Abstract:
Activity-based costing works best with a minimum amount of detail and estimated cost
figures. By training and inclination accountants are detail oriented, abhorring lack of
precision and vagueness. These qualities are incompatible with ABC. As a result, when CPAs
undertake an ABC project, they typically become overwhelmed with data. This article
attempts to get CPAs to see that activity-based costing is not that hard to implement, and it
can truly enhance their roles as business partner and consultant.
Abstract:
Contrary to conventional wisdom, activity-based costing is not only for large companies. It
works just as well for small organizations. While it is true that ABC is still being used mostly
by large organizations, that is largely because the large-company myth became deeply
embedded in conventional business thinking. That is beginning to change: Smaller
businesses are adding ABC to their management tools and recognize it as a powerful aid.
The experience of a small manufacturer that realized that a direct-labor based, plantwide
manufacturing rate did not accurately reflect the cost of individual products is presented.
The management assembled a multidisciplinary team to apply the basic concept of ABC to
create a cost model that would accurately cost out each of the company's parts. Once the
ABC team determined appropriate methods for costing the manufacturing and several
nonmanufacturing activities, it created a cost model and a spreadsheet template that used
the rates generated by the model to cost individual products.
Abstract:
As the demands of a strategic costing system and an operational improvement system are
different, trying to design a single system to perform both tasks can rapidly lead to conflicts
with the principles of intelligent design. Probably the most effective solution is to develop 2
separate systems, one for strategic costing and the other for operational improvement. The
primary challenge created by the decision to develop the 2 cost systems is to ensure that
the 2 systems articulate. Articulation of the 2 activity-based systems occurs when,
periodically, the strategic costing system is refreshed to reflect the latest values of the
updated standards from the operational improvement system.
Title: Systematic approach to activity based costing of the production planning activity in the book manufacturing
industry
Author(s): Curtis Walker Bard Fiber Optics, Michigan, USA, and Nesa L'abbe Wu Eastern Michigan University,
Michigan, USA
Source: International Journal of Operations & Production Management, January 19, 2000, Vol. 20, Issue 1, 13 p,
pp. 103-115 ISSN: 01443577
Keyword(s): product planning; work measurement; direct costs; activity based costing
Abstract: This paper justifies the need for moving indirect production planning costing in the book manufacturing
industry toward direct production planning costing. Principles of activity based costing are utilized to accomplish
this feat. This paper develops a methodology to break down the various tasks required in planning a job for
production in the book manufacturing industry and to apply time measurement to these activities. These time
measurements can then be used to individually cost the planning process of any book manufacturing company. The
methodology is tested and justified through extensive data collection and application in a major book manufacturing
firm. Thus, this industry can now effectively apply cost to activities of the planning process for each individual job
as a direct cost, rather than an indirect one.
Title: Justification and implementation of activity based costing in small and medium-sized enterprises
Author(s): A. Gunasekaran A. Gunasekaran is a Lecturer in the Department of Management, University of
Massachusetts, North Dartmouth, Massachusetts, USA. H.B. Marri H.B. Marri Lecturers in the Department of
Manufacturing and Engineering Systems, Brunel University, Uxbridge, Middlesex, UK. R.J. Grieve R.J. Grieve are
Lecturers in the Department of Manufacturing and Engineering Systems, Brunel University, Uxbridge, Middlesex,
UK.
Source: Logistics Information Management, December 6, 1999, Vol. 12, Issue 5, 9 p, pp. 386-394 ISSN: 09576053
Keyword(s): small to medium sized enterprises; activity based costing; cost management; implementation
Abstract: There is a potential to improve the overall performance of SMEs and hence their competitiveness.
Activity based costing (ABC) is gaining importance in organizations that are aiming for a major share in business by
improving productivity and quality. However, ABC has received little attention from SMEs in spite of the fact that it
has an important role to play in improving the competitiveness of SMEs. First, this paper reviews cost management
practices in SMEs. Second, justification criteria for the implementation of ABC in SMEs are discussed. Third, a
framework has been developed in this paper for the implementation of ABC in SMEs. Finally, some future research
directions are presented in the area of ABC in SMEs.
Title: A framework for the design and audit of an activity-based costing system
Author(s): A. Gunasekaran Department of Management, University of Massachusetts, North Dartmouth, MA, USA
Source: Managerial Auditing Journal, May 12, 1999, Vol. 14, Issue 3, 10 p, pp. 118-127 ISSN: 02686902
Keyword(s): activity based costing; implementation; systems design
Abstract: The objective of a cost management system is to provide accurate and useful information to help
companies in utilizing their valuable resources for producing quality goods and services in a competitive
environment. Activity-based costing (ABC) has been found more appropriate for capital intensive manufacturing
environments. However, there is no systemic framework for design and implementation of ABC. Realizing the
importance of ABC, an attempt has been made in this paper to develop a framework for the design of an ABC
system. It is based on the review of literature on the design and implementation of ABC. In ABC, the activities
required to manufacture a product should be identified and then quantified by their consumption of resources. The
cost of each activity that is required to produce the product/parts will be calculated in such a way that the factors
causing or driving the cost (cost drivers) of the activity in question can be determined. The cost driver rate will be
used to allocate the cost of activities to a product/part according to the volume of the cost driver. In addition, the
advantages and limitations of ABC are also discussed.