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- QUESTION
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please answer these questions referred to article in attached:
1. Definition of ABC method.
2. advantages of ACB method.
3. disadvantages of abc method.
note:
1. add citation
2. the answers will be checked by turn it in, so please no more than 3% of similarities.its preferred to be 0% similarly if u could.
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| Subject |
Article Analysis |
Pages |
2 |
Style |
APA |
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Answer
Activity Based Accounting refers to a concept where production costs are apportioned in accordance to products and their activities. ABC is a process where activities are identified in relation to the overheads that cause them. The cost drivers are then established and their volumes as per the products in the production process calculated and the overheads attributed the respective activities (Fadzil and Abdelqader, 2012).
The major advantage of ABC is that it is more accurate than the other traditional costing methods. It also facilitates easy identification of profitable units in a production process and assists in performance evaluation and preparation of the budget. It is also simple, convenient and the cost driver rates derived from the process can be applied as inputs when designing new products or when modifying existing one.
Activity Based Costing provides the total costs of a product while at the same time includes a detailed insight on the current costs of the product. The details on product costs assists the management to determine the various aspects of controlling costs and the opportunities available that may optimize the products profitability. ABC provides the necessary processes that can be used to trace all the costs and resources that have been spent or applied on the product.
The disadvantage of ABC accounting is that it is involving and the calculations are a little complex for average employees. The identification of cost drivers has to done carefully by experienced cost accountant to ascertain accurate results (Osman, Akif, Anitsal and Anitsal, 2014).
The method is still new and its application is yet to be tested in some fields. The impact that ABC has on profitability, cost reduction and efficiency is still not very clear. Most of the information that ABC uses is historic hence care has to be exercised when it is used as a base for future strategy.
References
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Fadzil, F. H. and Abdelqader R. (2012) “Management Accounting Change: ABC Adoption
& Implementation”, Journal of Accounting and Auditing: Research & Pracice,
1-17
Osman, K.O., Akif, M., Anitsal, I. and Anitsal, M.M. (2014) Activity Based Costing in Services Industry: A Conceptual Framework for Entrepreneurs, Entrepreneurial Executive, Volume 19.
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