Critical analysis of activity based costing and traditional costing Assignment

Critical analysis of activity based monetary valueing and conventional follow establishment - Assignment ExampleIn the efforts to implement the Strategic Management Accounting cost in organizations,modern business enterprises find Activity-Based be as an improved costing outline by which the riddle of large number of indirect costs and their tryst problem can be overcome It has been spy that rudiment method is the most sought after innovation in the field of management cast statement in the last two decades. The method was originated in the Unites States of America during the 1980s as an improved system to enable better cost allocation by means of classification of more costs as direct ( cooper and Kaplan, 1988). The advocates of ABC method argue that the firms would be able to enhance their efficiency and cost bear without having affected the customers value, if ABC is successfully implemented and followed. However, its acceptance rate is still overwhelming across indus tries and countries condescension the strong recommendation by Robin Cooper and Robert S Kaplan, the proponents of the method. The main problem associated with the low executing rate may be attributed to the difficulties and complexities of the system. This newsprint discusses and analyses the ABS system as an improved cost adjudge technique. The paper takes comparative and analytical approach in which comparison is made between ABC and Traditional Costing System (TCS). The paper discusses the various aspects of ABC as a superior technique of cost control by assuming hypothetical examples. Every attempt is made to analyse the important characteristic of ABC with that of TCS in a critical manner. 2. Activity Based Costing- Meaning and SignificanceABC as the wee-wee signifies is a system of costing based on activities involved in transformation member. ABC is the process of simplifying and clarifying decisions required to be made by the management using activity costs. It analy zes the cost and the benefits of various operational and business activities. According to Computer Aided Manufacturing International (CAM-I), Activity-based costing is a methodology that measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, then activities are assigned to cost objects based on their use. Activity-based costing recognizes the casual relationship of cost drivers to activities (CAM-I).ABC, which was basically developed as an alternative to traditional costing system enhances the scope of performance management as a measure. This system was propounded by Robin Cooper and Robert S Kaplan as a superior tool to overcome the limitations of TCS. The main inefficiency with TCS is that it fails to accurately measure the factual cost of production and hence decisions are made out of inaccurate data. Therefore, the main logic back end the emergence of ABC system revolves around supplying accurate information regard ing the cost of production, cost allocation which are vital for cost and profit analysis. The main argument in favour of the ABC system is that it is against the traditional system of cost allocation on a percentage basis. ABC system, instead takes into account the cost effect relationship for cost allocation on a subjective basis. Whenever a cost is incurred and identified in relation to an activity, the cost is allocated to the extent the product has used the activity. Supports of ABC system potently believe that supplying accurate information is the most important benefit of this system. In addition, ABC is reassert from the benefits such as cost control, cost reduction, more accurate allocation of indirect costs, improved acuteness into cost causation and identification of activity costs and improvement of operational efficiency (Kaplan and Anderson 2004). It has also been confirm for being able to supply accurate cost information which is necessary for fair pricing and ther eby adds value to customers.