An overview of the theory and practice behind activity-based costing.
Written in 2006; 2,583 words; 6 sources; APA; $ 78.95
Paper Summary:
Cost accounting is the process of tracking, recording and analyzing costs associated with the activity of an organization, where cost is defined as required time or resources. Activity-based costing (ABC) is a method of allocating costs to products and services. This paper examines how the major objective of the ABC process is to objectively determine a better way of doing business. It provides examples of cost analysis and concludes that the analysis of these costs and models serves to provide the basis from which decisions can be made and evaluated.
From the Paper:
"Costs can be categorized in three ways. Direct costs are those that can be traced directly to one output. For example, the material costs (varnish, wood, paint) to build a chair. Indirect costs are those that cannot be allocated to an individual output; in other words, they benefit two or more outputs, but not all outputs. An example would be maintenance costs for the saws that cut the wood, storage costs, other construction materials, and quality assurance. General & Administrative-costs cannot reasonably be associated with any particular product or service produced (overhead). These costs would remain the same no matter what output the activity produced. An example would be salaries of personnel in purchasing department, depreciation on equipment, and plant security."
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