having to meet financial accounting stock valuation requirements or a

Having to meet financial accounting stock valuation

This preview shows page 2 - 3 out of 3 pages.

having to meet financial accounting stock valuation requirements, or a reluctance to change or scrap existing systems, do not apply. Many service organisations have only recently implemented cost systems for the first time. This has occurred at the same time as when the weaknesses of existing systems and the benefits of ABC systems were being widely publicised. These conditions have provided a strong incentive for introducing ABC systems. B. The following may create problems for the application of ABC: i. Facility sustaining costs (such as property rents etc.) represent a significant proportion of total costs and many may only be avoidable if the organisation ceases business. It may be impossible to establish appropriate cost drivers; ii. It is often difficult to define products where they are of an intangible nature. Cost objects can therefore be difficult to specify; iii. Many service organisations have not previously had a costing system and much of the information required to set up an ABC system is likely to be expensive. C. The uses of ABC information for service industries are similar to those for manufacturing organisations:
Image of page 2
Exercises ABC 17.02.2020 3 i. It leads to more accurate product costs as a basis for pricing decisions when cost-plus pricing methods are used; ii. It results in a more accurate product and customer profitability analysis statements that provide a more appropriate basis for decision making; iii. ABC attaches costs to activities and identifies the cost drivers that cause the costs. Thus, ABC provides a better understanding of what causes costs and highlights ways of performing activities more efficiently by reducing cost driver transactions. Costs can therefore be managed more effectively in the long term. Activities can also be analysed into value added and non-value added activities and by highlighting the cost of non-value added activities attention is drawn to areas where there is a potential for cost reduction without reducing the products’ service potential to customers.
Image of page 3

You've reached the end of your free preview.

Want to read all 3 pages?

  • Fall '18
  • Bagels’ inspection cost

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors