Activity-based costing (abc) has replaced the new standard for almost every company. Maintaining a competitive advantage vis-à-vis national and international businesses is becoming more and more important in the face of increased competition and largely due to the growth of the world economy. In other words, competition increases costs and companies that can not keep up with their competitors will not succeed. The key to acquiring and maintaining competitive advantage and keeping it in business is how and where to effectively reduce costs without sacrificing the quantity and quality of products. Companies using the ABC costing method can achieve these goals.
Activity-based costing started in the 1980's, as traditional accounting methods did not take into account some important aspects. Traditional cost accounting methods were mainly designed in the years 1870-1920, and at this time the manufacturing industry was heavily dependent on manual (direct) work, no automation, very limited product types, and compared to modern makers a century ago, overheads. As time and technology evolved, from the 1960s to the 1980s, the manufacturing industry experienced metamorphosis. As a result, traditional cost accounting has become somewhat obsolete and can not provide a thorough and accurate analysis that businesses need to be successful.
In the simplest form, activity-based cost reimbursement results in cost-per-cost costs for a cost object based on activities on a cost object. This means that the company's products or services are the results of activities that use resources and cost. These costs are assigned to a specific task or activity that assigns the use or use of resources and the cost of the activities to all products, services, customers, activities, or organizational units (cost items). Cost objects are allocated based on activity on cost elements. ABC publishes costs, such as products or services, by defining production costs by determining the resources and activities required for production results and their amount.
Three steps must be taken to effectively implement ABC's cost system. The first step is to conduct an activity analysis to identify the company's resource costs and activities. Next, a company must select activities that use or consume resources based on cause and effect relationships. Finally, the company has to allocate costs to costs based on appropriate activities for cost items.
There are some big differences between the older traditional accounting methods and the ABC costing. For example, in traditional cost accounting, it was assumed that resources were cost elements, compared to the ABC cost, where cost objects use activities. In addition, ABS costing focuses more on processes than on the structure. In other words, your company needs to increase or steadily add activities that add value to the product and eliminate activities that do not give any value to the product.
There are many advantages to the experience of a company that uses activity-based costs to provide critical, in-depth analysis in their manufacturing process. For example, ABC cost estimates result in more accurate and more informative product costs, enabling the company to achieve more accurate product and consumer profitability measurements and provide a wealth of relevant information that can make strategic decisions about pricing and product lines. In addition, managers are helped by more accurately measuring the running costs of the activity. This enables them to improve product and process value by making better design decisions and making better customer service decisions. The ABC system provides information to identify the areas where process improvement is required. In addition, better product costs result in better estimates of pricing decisions, budgeting and planning. Another great advantage is that using the ABC cost estimate means driving ability to identify the cost of unused capacity. As many companies show seasonal and cyclical differences in sales and manufacturing, there are times when the plant can not use overcapacity or space. The company still has the cost of this unused space, and ABC's cost savings allow companies to separate these costs from regular product costs. The main objective is to manage capacity levels in order to reduce the costs of undercutting capacity and to reduce the price of goods and services.
In summary, activity-based cost accounting is an excellent new accounting method that enables companies to better identify the costs and activities that are involved in the production of their products and services. This method is much better than traditional accounting methods and allows the company to cut costs without sacrificing quality. As a result, companies will be able to say competitive prices at lower prices, which in turn increases sales, which will improve the economy. When ABC costs are used, the company, the economy and the consumers all benefit.
Source by sbobet