Activity Based Costing Research Paper

Activity Based Costing Research Paper - Activity Based...

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Activity Based Costing: Introduction The business environment focuses on making healthy investments and earning sizeable profits. Several companies in the same industry or even suppliers who provide heterogeneous products allow customers the opportunity to select from an immeasurable variety. Hence, those companies have to strive for recognition, remain spirited and match their competitors’ offers. Because competition is the driving force in business, it hinders companies’ growth and profit making abilities. Nevertheless, companies can overcome this obstacle by controlling or minimizing costs. However, if a company wants to lessen cost, it has to understand the cause and effect relationship between cost and its activities. Kocakulah stated that controlling expenses in a bank can only be done by having a better understanding of how certain products and their expenses are setup up to contribute to the overall expenses in day to day operation of a bank (2). That is true because the activities which drive the salaries expense would not drive the utility expense. The more exact a company is, the better off they will be in terms of quality and reliability. Cost Accounting was first developed in the early 1800s. According to Eldenburg and Wolcott, Cost Accounting has been used to make decisions, to measure, monitor and motivate performance, to analyze the profitability of customers, and to coordinate transactions with suppliers extending traditional cost accounting beyond the walls of the organization (8-9. All other references to Leslie G. Eldenburg and Susan K. Wolcott’s Cost Management Measuring Monitoring, and Motivating Performance will be indicated by page reference to this text.). There are various costing methods used to cost goods and services. The two primary costing methods used today. One is Traditional Based Costing (TBC), which involves Job Costing and Process Costing and the other is Activity Based Costing (ABC). Either costing method could be used depending on the companies’ size and activities. Whilst companies seek to find profitable opportunities, Dyer states that the key to being profitable is through accuracy. He further adds that if the information regarding the cost of producing goods and or services is not accurate, job bids may be too high or too low. Consequently leading to overall losses in the company either way. (1)
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What is a cost object? According to Eldenburg and Wolcott, a cost object is a thing or activity for which we measure costs (39). He further added that cost objects include things such as individual products, product lines, projects, customers, departments and even the entire company. Costs objects are cost based on their cost drivers. Eldenburg and Wolcott states a cost driver to be some input or activity that causes changes in total cost for a cost object. The cost of an object can be calculated with the following equation:
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Activity Based Costing Research Paper - Activity Based...

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