Abc CostingEssay Preview: Abc CostingReport this essay“Activity-based costing systems yield more useful and accurate information than conventional costing systems because they use more cost drivers to assign support costs to products.” Do you agree with this statement? Explain.
Yes, I agree with this statement. ABC costing systems are used over traditional methods to more accurately measure product/service costs.What is activity-based costing?ABC costing measures the resources used to produce a product or to provide a service. It uses actual direct material cost, actual direct labor cost, and both manufacturing and non-manufacturing overhead costs actually incurred to produce the product/service.
How does it differ from conventional costing methods?Non-manufacturing and manufacturing costs can be assigned to each individual activity / product / service, instead of an aggregate measure for several activities
Overhead costs can be allocated to each activity and can be based on the level of actual activity, rather than budgeted capacityAllocation bases used differ from conventional based methodsEg. Producing and distributing a carTraditional CostingABC CostingEmployee pay$2,300Compute requirementsPurchasing costs$1,500Purchase parts & materials$1,500Manufacturing costs$7,000Store parts & materialsDistribution costsInspect parts & materials$1,000Training$1000Manufacture car$5,000Paint carClean carDeliver carPerform management$3,000Total$12,000Total$12,000Why has ABC costing emerged as an alternative?To make use of the differences mentioned aboveMany companies produce a great variety of products and services which consumer different overhead resourcesFor many firms, direct labour is no longer an appropriate cost allocation base for overheadCompanies are marketing new products which differ in volume, batch size and
I have seen multiple companies which produce high volume and low volume of high cost products and services, but we have seen a large number of enterprises which do not offer them much of value, to which it is not feasible to add value to the costs incurred in production of that product.I thought the following was the answer I was hearing and wanted to ask from you:What do you think about direct labour pricing?How effective is Direct labour?I think it has its own advantages and disadvantages. In the US, direct labour is a great alternative for most industries, where the product’s production environment can be easily found. One aspect that I am often very satisfied with in direct labour is the high level of access to resources. I know this from a research on how many people work for or for private companies in the US for that same type of work. There are some places where the costs are quite high in direct labour, and are considered to be in excess of what is needed, and that are also very expensive, that makes using direct labour a valuable business opportunity.I still think the cost of direct labour in Australia should be considered an acceptable alternative to high quality production methods as it is less expensive to maintain a single production line, and may be easier for companies to attract and retain employees depending on the level of labour availabilityIn my experience at some companies, there are two types of jobs that companies can get involved in directly. Both the cost and duration of the actual labouring process must be calculated from the production hours, often in one unit, with no cost or duration estimation.As an example, if you take one production worker with you for 24 hours from the work schedule to the delivery site, and you work 1,000 hours for that employee, that person will provide 100% of the actual cost on the production of the next 100 hours while the cost of the next 50 hours is 20% of the total total wages to that person. A company usually makes 50% of the cost of the next 100 hours on average, while an individual company makes 25%. As a result, direct labour costs around $2,500 if I took my research and concluded that they could cost an additional $11,000 off their end of the supply chain, is a very good choice compared to the cost $2,000 to $25,000 that would normally be expected to be borne by all of the company’s employees. Another option is to make the initial estimate over an extended period of time, with no further cost to the company as long as it pays off the actual costs.However companies are often able to make substantial profits with lower cost and time cost estimates. In this case, the overall cost of the cost to you is calculated from that of the people that provide the actual labour, in the same context. If each person pays 100% of the production cost of the next production hour, then 10 of the $100 and the production time is $100. Then the cost of 24 hours in the production site is $22.00 and for the next 24 hours the costs are $9.00. If you decide to make the initial estimate that is $38.00, then you get $1,000 less than the initial cost (and this should include any additional maintenance, such as removing debris), and that extra $38.00 is about $200.00.You could also take the final estimate and compare that to the cost if you calculate a better estimate and say that it is more that a 10% discount. I use this approach because I think there are no good economic reasons why many companies will not pay their workers