• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14
  15. 15
    15
  16. 16
    16

Business Administration: Management Accounting

Extracts from this document...

Introduction

UNIVERSITY OF WALES, NEWPORT - NEWPORT BUSINESS SCHOOL - Report concerning: a) the comparison of activity-based costing to the client's basis of overhead absorption; b) the analysis of potential benefits of activity - based costing; c) the required information needed to implement activity - based costing DANIEL BRADTKE 17th November 2004 Course Title: BSc (Hons) Business Administration Module Title: Management Accounting Module number: (G)104599 TABLE OF CONTENTS TITLE PAGE 1 ABSTRACT 3 INTRODUCTION 4 SECTION ONE: 1. Comparison of ABC and the client's basis of overhead absorption 6 1.1 Characteristics and function of the client's current basis of overhead absorption 6 1.2 Characteristics and function of ABC 8 SECTION TWO: 2. Analysis of the potential benefits of ABC 11 2.1 Determination of accurate product cost 11 2.2 Profitable Product-Mix 11 2.3 Process efficiency and improvement of the business plan 12 SECTION THREE: 3. Implementation of ABC and the required information 13 Conclusion 15 References 16 Bibliography Abstract The initial aim of this report is to layout the main differences of the client's current basis of overhead absorption, compared to activity - based costing (ABC). By showing the divergence of both systems, it appears that information generated from traditional overhead absorption does not properly equip client's management with suitable information for decision making. An additional aim of this paper focuses on the potential benefits of activity - based costing. ...read more.

Middle

Scarlett (2002) adds that this method does not decode information from the ledger into a format that serves managers. Subsequently, there are no answers to the question 'what does it say about current or future processes and practices?' (Andersen, 1999). Since allocation systems do not reproduce the true cost and flow across the operations and processes of a business, this cost accounting technique for capturing cost is defective. As a result, operational management tends to ignore cost accounting information. 1.2 Characteristics and function of ABC Activity-based costing is a decision making tool that allows, in comparison to the traditional overhead absorption, organisations to clarify the actual cost linked with each product and service produced. This is without regard to the organizational structure (Cooper and Kaplan, 1988). Andersen (1999) stresses the fact that ABC enables organisations to expand business performance through increased competence and reduction of costs. ABC identifies the key activities performed in all stages of delivering the product or service to the customer. It is these activities that consume the resource and these same activities that create the product. Recognising this relationship is the cornerstone of ABC. It allocates cost (or resources) to activities based on consumption of resources namely; resource cost assignment (Andersen, 1999). ABC improves upon the traditional approach by using a two-stage allocation system and multiple cost drivers (Coenenberg, 1992). ...read more.

Conclusion

This can give further information as to whether they are directly attributable to specific activity centres, or not (Drury, 1997). Step 3: Determine the cost driver for each major activity Drury (1997) suggests that in order to find a suitable cost driver, all information has to be offered to guarantee that the possible cost driver provides a good explanation of costs in each activity cost pool. In addition, the author points out that when generating this information it should be ensured that cost drivers stand for a homogeneous measure of the output of every activity. In this step the straightforwardness of generating information on cost driver consumption by products is vital for further actions (Drury, 1997). 4. Conclusion It seems that activity-based costing offers many strategic, operational and financial benefits to the client's organisation. The comparison of ABC and the client's current basis of overhead absorption reveal that ABC has the capability to produce more meaningful results with a higher level of accuracy. It contributes effectively to the client's decision-making process due to its method to measure product costs based on the activities performed to produce it. As a result, the client's organisation will be equipped with answers to the market needs. This will give rise to improvement of efficiency and reduction of costs without sacrificing the value to the customer. Lastly, the successful implementation of ABC into the client's company depends on the supply of accurate and proper information such as an activity analysis of the client's complete business. . 5. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level ICT in Business section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level ICT in Business essays

  1. For my business report I am investigating the Co-op erative society supermarket.

    * The have a length of time to take decisions, * unclear job and task responsibilities * High degree of conflict and have profit responsibilities. Division structure A divisional structure is use to represent large manufacturers organization on both

  2. My aim is to research and produce a formal business report on my the ...

    Person-oriented culture Person-oriented culture places great importance on the individuals within the organisation. They are valued for their skills, their professionalism, their creativity and ingenuity. Change culture Change cultures are valuable for businesses trading in highly competitive area and flexible markets.

  1. Business report on Marks and Spencer.

    22.2 Benefits Significant business benefits can be expected from the completed CMS project, such as streamlined communications with suppliers and a more efficient process for contracting products in time to match seasonal market trends. Total cost of ownership is always an important aspect of IT development.

  2. Human resources

    of Commerce & DG Enterprise & Institute for Small Business Research (IFGH) have jointly made a research study on the present sustain that SMEs and Family Businesses have. This research has reached the following conclusions: * Support policies developed in a disorganised manner during the years * SMEs & Family

  1. The business I am going to set up is a snooker club,

    Examples of this would be stock, rent, deposit, loan interest, loan repayments, bills refurbishment, purchase of car, car running costs and the wages. This is shown in the Cash Flow forecast. 4.3.3 Budgets A budget is a forward financial plan.

  2. Develop my understanding regarding the production of accounts and their use for business decision ...

    At the same time, it signs an agreement to lease back the property for a fixed annual rent. The business receives a lump sum of money, which can be used to pay for expansion. The drawback is that the business now has to pay rent on the property. Ratio Analysis.

  1. kanthal - accounting

    Previous System Kanthal's previous costing system was inefficient in allocating resource costs to products and customers in the proportions they were being consumed. The indirect costs were either manufacturing costs that were allocated to products based on direct labour, or S&A costs which were treated as period expenses and allocated

  2. Activity Based Costing

    (Management Accounting, 1998, Vol. 79, Iss. 10) From the organisations which took part in the survey the diagram above gives an idea of how many have accepted ABC and who have not. As shown, 49% have decided to commit to ABC while another 25% are considering committing to ABC.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work