Activity Based Costing (ABC)

Activity Based Costing (ABC)

Activity Based Costing (ABC) is more relevant than traditional costing in companies, where product mix is diverse in; batch sizes, physical sizes, degree or complexity, and raw material characteristics. ABC will also provide more decision useful information for the service industry, characterized by diversity in range of services provided. If the products in a plant or services provided possess similar characteristics, wither volume based or an activity based cost driver will provide reasonably accurate costs. “The strategic goal of ABC is to provide decision useful cost and profitability information for optimal pricing decisions, appropriate product mix, and operational improvements by focusing on activities and cost drivers.” (Burch, 1994)
ABC provides a closer approximation of the cost of product, than that provided by the traditional volume based costing method. The use of ABC in itself will not lead to better profitability management uses information provided by ABCs to decide the optimal product-mix. The action of the management will lead to improved results.
For your Individual Research Paper, you will choose a topic, approved by the instructor that deals with some aspect of theory related to topics covered in the course.


 

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