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The concept of Activity Based Costing is almost a lost art but the need for this type of project management concept is critical. It has perhaps never been so important to tie the cost of a feature to its potential returns. That is impossible if you don't know what at thing costs. See this article for more on the subject.
KONSEP BIAYA: ANALISIS PERBANDINGAN ANTARA METODE ACTIVITY BASED COSTING DAN METODE TRADISIONAL DALAM MENETAPKAN HARGA POKOK PRODUKSI
KONSEP BIAYA: ANALISIS PERBANDINGAN ANTARA METODE ACTIVITY BASED COSTING DAN METODE TRADISIONAL DALAM MENETAPKAN HARGA POKOK PRODUKSI
Erwin Yudianto & Daniel Sugama Stephanus Progam Studi Akuntansi Universitas Ma Chung Malang 2010 LatarBelakangMasalah Pada era globalisasi ini dunia usaha semakin berkembang dengan sangat cepatnya. Perkembangan dunia ini ditandai dengan semakin ketatnya persaingan diantara perusahaan-peusahaan yang ada. Persaingan ini terjadi disemua sector perekonomian baik industry, perdagangan dan…
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Our applications would help the Project Managers to calculate the key performance indices for making decisions easily. Their time would also be saved since most of the analysis is easily done by the system itself and they would just need to assess the trends and perform the end tasks.Our data model also provides you with the best version control.
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Cost Analysis Templates And Tips On Pitfalls In Cost Management
Cost Analysis Templates And Tips On Pitfalls In Cost Management
Cost Analysis Templates Free Downloads A main trap for the purpose of price estimating is failing to remember something, and never understanding that a good function and work is required. To get a good valuable and reasonable price estimate, adhere to on differences and toe nail lower information on what function will probably be performed for that projected costs. Your price forecast is…
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Free Templates To Calculate Total Manufacturing Cost For Accounting Management
Free Templates To Calculate Total Manufacturing Cost For Accounting Management
A organization’s total production cost will be sum of money spent to fabricate goods inside a offered time. Knowing the total production cost will be vital since it may be in comparison to total revenue and inevitably applied to find out your company’ profits. It is particularly critical for the purpose of small establishments that may never have luxury of any financial security net. The…
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Continuous Improvement Tools In Lean Manufacturing Processes
Continuous Improvement Tools In Lean Manufacturing Processes
Lean production helps you accomplish higher rates of client satisfaction although managing waste materials. Implementing ways of carrying on with, staged advancements from the production procedure pinpoints issues that have an impact on top quality and performance. Whenever you implement rules of lean production to those concerns, the production procedure ought to become more effective. Resulting…
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Evaluation of the impact of activity based costing on profitability of a firm
Summary
From the past, there has been the implementation of the traditional costing systems. These have proved to be useful from the past for the valuation of the inventory and to measure the cost of goods which are being sold. Though, in the present competitive environment the people are facing a large number of challenges with the present global competitive environment. The activities related to the costs and the management accountants may be expected to be the team players in some of the areas including product development, analysis of the profitability, improvements and the quality related processes and the evaluation of the complete performance of the company. As a result of the same, the strategic cost management tool, one of the most important roles is played by the activity based costing. In this kind of costing, there is an analysis of the business operations in which the identification and the classification of the costs is based on the activities.
Introduction
The activity based costing method and its implementations helps in the reduction of the costs and the improvement of the allocation of the resource. It may also help in the improvement of the allocation of the resources in a consistent manner which may be related to the improvement of the resource allocation which may be consistent with the strategic objectives and the surplus of budget. In this report, the discussion has been compiled on the impact of the activity based costing and the analysis of the same on the profitability of the firm.
Background/ Rationale/ Objectives
During the time of mid 1990s, it was reported as per the survey of the Australian Manufacturers had reported that around twelve percent of the top five hundred companies which had been there in Australia had adopted the activity based costing scheme. During the same times around twenty nine percent of the companies had been planning to implement the same in future. At present thousands of firms in the world are using the activity based costing. The popularity of this method can be traced back to the mid 1980’s. There had been some of the research on the activity based costing and the impact of the same. McGowan and Kalmmer (1997) did the examination of the application and implemented the same in the form of the case study. This helped in doing the assessment of the degree of interest and adoption. Though, the literature has left a certain gap with respect of the measurement of the perceptive related to the activity based costing. It may be argued that the behavioral issues may play a most important role in the successful implementation of the activity based firm.
Preliminary Literature Review
In this study it would be found that how the activity based costing system may impact the profitability of the firm. It had been analyzed by (Wenner and Leber, 1989) that Activity Based costing can help in the providing of the essential information related to the competitive advantage of the firm. This approach had been highlighted by the Shank and Govindrrajan (1993). It was founded by them this approach is very important to do the measurement of the two things. Firstly, it is important to measure the activity which may be considered necessary for the management of the operation decisions related to the firms. It had also been suggested by Welfle & Keltyka (2000) also suggested that Activity based firms led to the creation future cash flow projections. This had been argued that this may lead to the investment in some of the value based activities. These activities include the support in the products, the services, the customers and the market segments. Clarke (1994) stated that the activity based process of management of cost and the complete infusion of the same in the business processes led the re-engineering of the framework. The activity based approach had been used as the base for some of the applications which may include the benchmarking, reduction of the costs and the transfer pricing. Though, initially the ABC concept had been initially developed in terms of the manufacturing concept, it can be applicable in a proper manner in the service sector. Malmi (1999) stated that there may not be a common view which may help in making the accounting system in the ABC System. With respect of the framework, Activity based costing can be viewed as the model which is related to the cost and performance measurement and can help in the provision of the operation improvements and the formulation of the strategies.
On the basis of the literature study, several things have been identified. Firstly, it may be found that ABC may not be suited for each and every firm. Anderson (1995) and Malmi (1997) argued that the successful implementation of the same depends on some of the technical and organizational factors. It had also been argued by Malmi (1999) that the adoption may be dependent on the large number of factors which may include the size of the firm, the type of production, degree of centralization which may be there, the diversity of the product and the ratio with respect to the total costs. It had also been suggested by Gosselin (1997) that there are some of the specific characteristics in the business strategies and the structure of the organizations which can help in the adoption and the implementation of the Activity Based costing.
Research Methodology
The research methodology which had been used for the purpose of the research had been exploratory in nature. The study had been conducted on the seventeen companies which had been listed in Australia and the one which may be using the ABC systems. Some of the most important respondents which had been interviewed for this research included some of the people such as the finance directors, chief financial officers of the company, the cost and management accountants and seventeen other executives which had been there in the companies. These participants had been contracted through the phone or email (Welfle & Keltyka, 2000). Each of the participants had to respond to the questionnaire for the impact of the ABC on the firm’s profitability. One of the most important questions which had been asked related to the activity based costing was the fact that how the activity based costing had impacted the overall profit of the firm. Another important question was that how the executives perceived the performance of the firm. On the basis of the interview, fourteen items had been constructed. These items proved to be the key for the measurement of the perceptions of ABC (Ray & Gupta, 1992).
Data Collection
The collection of the data for the purpose of the research had been done through the help of the questionnaire. There were a total of fourteen questions which had been asked from all the researchers. The options which had been asked included five options which were expressed as 1= Strongly Agree, 2=Agree, 3=Neutral, 4=Disagree and 5=Strongly Disagree.
Results and Discussions
There were different responses obtained from the interviews. The values were calculated on the basis of the mean obtained from the responses of all the respondents. The mean value of the question related to the ‘enhanced capability of the business performance is obtained by the ABC’ was 2. This meant that most of the respondents didn’t agree on the question related to the enhancement of the capability of the business performance through ABC. Another question was that if ABC increased the internal managerial efficiency (Turney, 1992). The mean of the same was obtained to be around 1.1. A yet another question was if the customers are benefitted from the same. The mean of the same was around 3.5. This meant that the respondents did agree that the customers are benefitted because of the ABC system. Another very important question was if ABC system had helped in the identification of the major cost drivers for each of the products of the company. The mean of all the responses was around 3.7. This meant that more than 75 % people agreed that ABC system had helped in the increase in the profitability of the firm. Another question was that if ABC has proven to be the strategic system for the management of the costs (Shields, 1995). The mean of the responses obtained was around 4.2. This meant that the respondents did agree that the ABC system had benefitted from the strategic cost management system. Another question was if the implementation of ABC has helped in the improvement of the overall profitability of the firm. The responses obtained for the same was around 4.6. Therefore, more than 92 % of the respondents agreed that the ABC Cost system had a significant impact on the overall revenue of the firm (Innes & Mitchell, 1995).
Conclusion
Thus, it can be concluded that the introduction of the ABC system has been useful for the companies as it has helped in the improvement in the overall profitability of the firm. The ABC system has a significant impact on the profitability of the firm as it helps in the proper strategic cost6 management, valuable allocation of the costs and to decrease the cost required for the production of each and every product. In this report, the discussion has been done on the impact on the profitability of the firm because of the implementation of the ABC (Activity Based Costing) System. The results have been obtained through the Literature review and interviewees from the respondents.
References
Anderson, S. W., 1995, A framework for assessing cost management system changes: The case of activity based costing implementation at General Motors, 1986-1993, Journal of Management Accounting Research 7: 1-51
Cooper, R. and Kaplan, R.S., 1991. Profit priorities from activity-based costing. Harvard business review, 69(3), pp.130-135.
Gosselin, M., 1997. The effect of strategy and organizational structure on the adoption and implementation of activity-based costing. Accounting, organizations and society, 22(2), pp.105-122.
Innes, J. and Mitchell, F., 1995. A survey of activity-based costing in the UK's largest companies. Management accounting research, 6(2), pp.137-153.
McGowan, A.S. and Klammer, T.P. 1997. "Satisfaction with activity-based cost management implementation", Journal of Management Accounting Research, vol 9, pp. 217-237.
Malmi, T., 1999. Towards explaining activity-based costing failure: accounting and control in a decentralized organization. Management accounting research, 8(4), pp.459-480.
Ray, M.R. and Gupta, P.P., 1992. Activity-based costing. Internal Auditor,49(6), pp.45-52.
Shank, J.K. and Govindarajan, V., 1993. Strategic cost management: The new tool for competitive advantage. Simon and Schuster.
Shields, M.D., 1995. An empirical analysis of firms' implementation experiences with activity-based costing. Journal of management accounting research, 7, p.148.
Turney, P.B., 1992. Activity based costing. Management Accounting Handbook”(4 th Edition), edited by C. Drury, Butterworth-Heinemann and CIMA.
Ward ,T. and K. Patel. 1990. ABC-A framework for improving the shareholder value, Management Accounting (UK) (July): 34-36
Welfle, B. and Keltyka, P. 2000. "The new challenge from management accountants", Ohio CPA Journal, vol. 59, pp. 30-36.
