between activity-based costing and improvement in financial performance Douglass Cagwin* and Marinus J. Bouwman† This study investigates the improvement in financial performance that is associated with the use of activity-based costing (ABC), and the conditions under which such improvement is achieved. Internal auditors furnish information regarding company financial performance, extent of ABC usage, and enabling conditions that have been identified in the literature as affecting ABC efficacy. Confirmatory
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www.ccsenet.org/ijbm International Journal of Business and Management Vol. 6, No. 11; November 2011 Activity-Based Costing System in the Service Sector: A Strategic Approach for Enhancing Managerial Decision Making and Competitiveness Ashford C. Chea School of Business, Kentucky Wesleyan College 4721 Covert Avenue, Evansville, IN 47714, USA Tel: 1-812-471-9341 E-mail: achea@ix.netcom.com Received: June 21, 2011 doi:10.5539/ijbm.v6n11p3 Accepted: July 4, 2011 Published: November 1, 2011
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Activity-Based Costing Activity-Based Costing (ABC) attempts to more accurately assign overhead costs to the users of overhead by focusing on activities. The basic principle underlying activity-based costing is that an activity, which is a task, operation, or procedure, is what causes costs to be incurred. For example, cutting raw materials consumes, labor and machine hours. Likewise, warehousing products consumes resources (costs) such as employee time for driving a forklift, the electricity to
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A1. Costing Method to Activity-based Costing As Competition Bikes Inc. looks forward towards the future, understanding Activity-Based Costing and the differences from Traditional Cost accounting will help the company be more accurate and efficient which will in turn make the company more viable in their current market. This section will review what activity-based costing is and the benefits which it can have for Competition Bikes. Activity-based costing is when manufacturing overhead costs are
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ACTIVITY BASED COSTING ➢ Cost attribution to cost units on the basis of benefits received from indirect activities e.g. ordering, setting up, and assuring quality. ➢ Most overhead cost can be analyzed between the following: ➢ A) Short term variable cost, that varies with the volume of production. ➢ B) Long term variable cost that do not vary with the volume of production, but do vary with a different measure of activity. ➢ Kaplan and cooper have suggested that long term
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observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs. The issue of misallocation cost With the use of Traditional Absorption Costing (TAC) which means Wilkerson Company is now only put the costing of direct labor and material
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accounting. Product costing has always been a much debated issue in management accounting. The area that has generated a host of conflicting views is the allocation of overhead costs to products. Traditional absorption costing is claimed to be resulting in an unfair allocation of overhead costs to products. New approaches such as the Activity Based Costing (ABC) did not receive widespread adoption. It is being realized in management accounting field that an emerging costing method known as Resource
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companies to identify and evaluate activities using activity-based costing and value analysis. Activity-based management focuses on managing activities to reduce costs and improve customer value. This paper focuses on the techniques and processes a company uses to remain competitive in the twenty-first century. The History Behind ABC and ABM In Peter B.B. Turney’s book Activity-Based Costing, the techniques of activity-based costing and activity-based management can be traced back over thirty
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cost center ¾ Who are ETO’s customers? – the departments producing ICA, ICB, Capacitor, Amplifiers and Diodes ¾ Customers have to bear the cost of maintaining and operating ETO. ¾ Any signs of problems? 12 Main Questions ¾ Is the current costing system – using direct labor dollar as the single allocation base - adequate? Are there signs in the case that it is not? ¾ Why does the current system exist? ¾ As time has passed, which kind of testing within ETO is actually causing overheads
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Wilkerson is having allocating overhead to products, should it consider abandoning overhead allocation altogether and switching to a direct costing or contribution margin approach (measuring product profitability as price less direct materials and direct labor costs only) with its products? They should have both. Net income under variable costing and absorption costing won’t be different because Just-In-Time system minimizes inventory, which is the root of the difference between the two reporting statements
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