ACTIVITY-BASED COSTING SYSTEM 1

ACTIVITY-BASED COSTING SYSTEM

This is a costing procedure that links activities or duties in an organization, company, or entity and assigns the cost of each business to all other goods and services according to its initial input in terms of capital used. This method applies more of the value that cannot be easily accounted for or in other words, the overheads, they assign these overheads into direct costs(Patton, 2015).It identifies the activities that an organization uses,implements, and then allocates unforeseen costs to cost objects. ABC is used in checking how duties and work in the production process are performed in an organization.

The activity-based costing system concentrates on those activities that are cost drivers, which may lead them (costs) to increase, contrary to the initials costing systems that majored in events such as hours of laboring, transaction activities. ABC followed a systematic process, as discussed. It identifies the accomplishments and its area as the first in this system and later, try to do rough determination of how much the activity will cost(Patton, 2015). Allocate the duties specified according to how it will cost and its respective area of practice or cost pool and later, try to calculate the total cost of that activity at the given rate, allocates these costs to the individual product produced. After following all these activity procedures, prepare a report about the particular value on the respective production of that specific good. This method is not as simple as one can imagine, but it’s very relevant and practical..

Reaction

Activity-based costing gives a nearly correct procedure of goods service costing. Accuracy  eacas a ttresult pricing can be cmethod  be ususcma. It also increases the knowledge of indirect costs in the production process (Patton, (2015). This method assists managers in removing those activities that do not help in any way in the production process resulting in the reduction of production cost in general. Reducing the cost of production has another advantage of maximizing profits for the organization as it is cheaper to raeeannormal environment when factors of production will remain constant.  Activity-based costing system builds the management quality of an organization as there will be a successive improvement which will, in turn, improve the customer relationship as well the relationship between the management and business-related individuals such as, creditors, stakeholders, debtor’s government, employees among many other persons directly associated with that particular organization.

References

Patton, C. M. (2015). Employing Active Learning Strategies to Become the Facilitator, Not the Authoritarian: A Literature Review. Journal of Instructional Research, 4, 134-141.