Using Traditional Costing And Activity Based Costing - amazonia.fiocruz.br

In this report I will attempt to discover whether it is feasible as a company to change the Traditional methods of costing we currently use to the more modern Activity Based Costing methodslooking at Usinf benefits and drawbacks of changing and whether it is worth implementing these new costing methods to our company as a whole.

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As a small local engineering firm we currently use the Traditional costing method where we apportion Production overheads on the basis of direct labour hours. Does this give a fair and accurate representation of the true cost of expenditure each product consumes or should we as a company convert to the Activity Based Costing system or ABC as I will refer to it from here in, where we first assigns costs to the activities that are the real cause Anx the overhead and then assign the cost of those activities only to the products that are actually demanding the activities.

Would this give a fair Using Traditional Costing And Activity Based Costing more realistic look at the way we cost jobs. In this report I will look at both methods and determine whether we as a company should change the way we cost our jobs and if we do change to the ABC Analysis of Dolls House of costing, what the conditions are of implementing this to us. Currently we adopt the more traditional way of apportioning our production overheads which involves the overhead rate being calculated using direct labour hoursmachine hours, Baseed units, in our case using direct labour hours. The advantages of using this system are:.

However, in recent decades the manufacturing overhead has been caused by many other factors.

For example, some customers are likely to demand additional manufacturing operations for their products. Other customers simply want great quantities of product. If we want to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate. ABC was developed to overcome the shortcomings of the traditional method.

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Instead of just one costing such as labour hours, ABC will use many costings to allocate our indirect costs. A few of the costings that would be used under ABC include the number of machine setups, the pounds of material purchased or used, the number of engineering change orders, the number of machine hours, and so on. So do we continue to use this system because it is simple to use Activiity has been used for decades or do we want a more accurate analysis and breakdown of the way we allocate costs.

Activity-Based Costing ABC is an Information System developed in the s to overcome some of the limitations of traditional cost accounting and to enhance its usefulness to strategic decision-making. ABC systems are designed and implemented on the premise that products consume activities, activities consume resources and resources consume costs Sprow, ABC systems assign costs to activities based on their consumption of resources, and then activity costs are assigned to products or services in proportion to a selected measure of their individual workloads Anderson, ; p.

Activitty

ABC systems examine all processes or activities that are Cosying relevant to the production of a product and attempt to determine exactly what portion of each resource is consumed i. Nowadays managers are facing global competition and increased productivity in new manufacturing environments. Companies attempt to become customer focused and concentrate on quality products at competitive prices.

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Under these circumstances, many firms are interested in determining various costs more accurately with the objective to integrate manufacturing and marketing strategies. Costign costing systems are used to provide an increased accuracy about product costs, product mix, pricing and other investment decision- makings. Some experiences reveal that the distortion in reported product costs and, in turn, product pricing could be reduced by using activity-based costing ABC.]