Activity Based Accounting Assignment Help, ABC Activity Based Accounting Homework Help

 

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The activity based accounting method consists of identification of performance of firms' activities and the assignment of indirect costs to products. The relationship between costs, activities and products is recognized first. Based on this relationship, the indirect costs to products are assigned less arbitrarily compared to other traditional accounting methods. Due to the difficulty in ascertaining costs like management and staff salary costs, the method has found its niche in the manufacturing sector. Activity analysis, which is the primary component in activity based accounting method helps to remedy the distortions of traditional cost accounting methods. These distortions include charging the products for which resources are not used. However, traditional cost accounting remains as the cheapest method.

Four basic steps are involved in the implementation of activity-based accounting. These include cost system evaluation, ABC design, ABC implementation and system evaluation and validation. Activity-based accounting demands the need for a basic mind shift from the management, which includes constant and continuous improvement in all fields. By understanding how resources are transformed into products or services, and by focusing on the cost of activities, ABC helps an organisation to obtain a greater understanding of how costs behave in their organisation and which activities create significant amounts of cost.

Traditional cost accounting methods rely on single volume measures like direct labour hours, direct labour costs or machine hours. This is to comply with the financial reporting requirements of a firm. However, it rarely meets the cost and effect criterion desired in cost allocation. On the other hand, the activity based accounting is not restricted by the limitations of financial reporting requirements. Activity based accounting is very flexible and can provide special reports to facilitate management decisions in many cases. The focus of activity-based accounting is on accumulating costs through main activities while that of traditional accounting is accumulating costs through building blocks.

 

Though the activity based accounting is found to be very complex and costly to implement, the main benefits from these include the following. True costs and productivity of capital equipment understanding, relative profitability of products understanding; enhance the accuracy of pricing and chances of less time and money spent on wrong products. In spite of these benefits, the implementation of the activity based accounting needs substantial resources and thus very costly. There is possibility of easy misinterpretation of the data collected through activity-based accounting. Moreover, reports generated by the activity-based accounting do not comply with the Generally Accepted Accounting Principles.

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