Abstract The paper explains that activity-based costing (ABC) allows accountants to obtain a more precise view of the costs associated with specific products or services. This paper uses a case analysis to explore how ABC can help to achieve greater costeffectiveness in the healthcare industry. The paper concludes that although ABC can play an important role in reducing healthcare costs, little can be done to reduce direct costs associated with a procedure without a sacrifice of patient safety.
Outline:
Introduction
Objective of the paper
Analysis, Findings & Discussion
Suggestions, Recommendations & Conclusions
From the Paper "Activity-Based Costing (ABC) allocates the costs of production to specific products or services. It is more precise than older methods of accounting that involved adding a broad percentage of expenditures to direct and indirect costs. The definitions of direct and indirect costs varied and were often a judgement call on the part of the accountant. ABC allowed accountants to obtain a more precise view of the costs associated with specific products or services."
This paper discusses the ABC accounting process, which evaluates and determines ways to improve the quality of financial decisions at the Department of Defense (DoD).
Abstract This paper explains that the Department of Defense (DoD), with more than $1 trillion in assets and a budget that accounts for about half of the federal government's discretionary funding, has a need for accurate accounting processes. The author points out that ABC captures quantified cost and time data and translates it into information for making decisions by measuring process and activity performance, by determining the cost of business process outputs, and by identifying opportunities to improve process efficiency and effectiveness. The paper concludes that the ultimate decision will be based on a blended action that minimizes cost and time, while creating a better outcome.
Table of Contents
Big Need for Accurate Accounting ABC in the Military
Process Decision Example
Success Stories
NASA
Fleet and Industrial Supply Center (FISC)
Military Resistance to ABC?
Who Might Benefit in the DoD?
From the Paper "In the 1990s, the RAND Corporation, including its defense-oriented federally funded research and development organizations, offered a better way for the DoD to pay for its purchases, one it thought would improve the interactions; after all, if a unit overspent in one year, then the next year it would be looking for lower prices. That meant that the organization it purchased from would experience a loss, or potentially could, which in turn could affect the service or product quality or delivery. However, the WCF arrangement bore the stamp of approval of the DoD Comptroller's office, which suggested that the WCF approach has saved ?billions of dollars by providing managers with greater visibility into the costs of DoD support operations.?"
Tags: rand, budget, time, cost, website, purchases
Abstract The writer of this paper stresses that the purpose of any costaccounting system is to provide current information about the total cost of manufacturing a product or performing a service. This paper analyzes in detail the strengths and weaknesses of traditional costaccounting (TCA) and activity base costing (ABC). TCA is a well developed method of estimating cost incurred while the ABC system is based on costs which are driven by factors other than product volume.
From the Paper "A problem may arise in the use of actual overhead costs. The problem stems from the fact that many of the elements of manufacturing are fixed costs, rather than variable costs. Fixed costs are those that tend to remain relatively constant from month to month. Examples of fixed overhead costs include the monthly salary paid to plant managers, depreciation, property taxes, and insurance on plant assets."
Abstract The paper analyzes Chris Murphy's article "What's Next" that focuses on current IT outsourcing practice and Lee and Margaret Covell's article "A Strategic Approach to Overhead Management" that discusses operations cost-cutting. The paper then looks at Joseph Bozada's article "Generating Shareholder Value: Much More Than Cost Cutting" that suggests that worker layoffs might be counter-productive and finally, the paper examines the editorial in the Measuring Business Excellence magazine that explains how improved cost-efficiency can also be achieved through an innovative use of accounting and financial processes. The paper notes that all four authors agree that companies need to look beyond such traditional cost-cutting methods as layoffs, outsourcing and downsizing.
Outline:
Introduction
Analysis: New Perspectives on Outsourcing and Operations Cost Cutting
Analysis: Novel Approaches to Cost Cutting
Conclusion
From the Paper "In today's challenging business environment, companies are considering cost-cutting strategies more often than just a couple of years ago. There are three well-established methods of cost cutting: downsizing, outsourcing and cutting the costs of operations (Crampton & Hodge, 2007, p.341). Managers usually turn to one or a combination of these strategies during difficult economic times and/or situations of company underperformance. However, according to many analysts, such behavior might be counterproductive and even dangerous (Bozada, 2004, p.17). While hasty layoffs and downsized operations might improve the immediate financial situation, in the longer term they might create a strategic disadvantage and even cut into future revenue gains. According to Bozada, this happens because "This approach primarily focuses on cost cutting and will, by definition, only produce limited results" (p.17). What is needed therefore is a strategic and innovative approach to the concept of cost cutting."
Abstract This paper examines the applicability of traditional management accounting techniques in the modern market-driven environment, along with the new roles and responsibilities that are vital for thriving management accountants. The paper shows that it is imperative for management accountants to acquire critical skills, namely communication and analytical expertise, comprehensive knowledge in the area of accounting, information technology and the business and the ability to work in a team, so as to fully reap the benefits of the new advanced approaches.
Table of Contents:
1 Introduction
2 The Evolution of Management (Cost) Accounting 2.1 Single-Activity Enterprises
2.1.1 Early Nineteenth Century ? Textile Mills
2.1.2 Middle Nineteenth Century ? Railroad Companies
2.1.3 Late Nineteenth Century ? Large Retailers
2.2 Scientific Management Movement and Standard Costing 2.2.1 The Scientific Management Movement
2.2.2 The Emergence of Standard Costing 2.3 Multi-Activity Enterprises
2.3.1 Return on Investment (ROI)
3 Critique of 20th Century Management Accounting 3.1 Lack of Relevance
3.2 Cost Distortion
3.3 Inflexibility
3.4 Incompatibility with World Class Approaches
3.5 Inappropriate Links to the Financial Accounts 4 21st Century Management Accounting 4.1 The Focus of Future Management Accounting 4.2 The Role of Future Management Accounting 4.2.1 Internal Consultants or Business Analysts
4.2.2 Team Member / Leader and Advisor
4.2.3 Financial Information Specialists and Information System Designer
4.3 Critical Skill Required By Management Accountants 4.3.1 Sound Understanding of Accounting Knowledge and Skills
4.3.2 Comprehensive Understanding and Competence of Business
4.3.3 Communication Skills
4.3.4 Analytical Skills
4.3.5 Knowledge of Information Technology Systems
4.3.6 Teamwork
5 Conclusion
6 Bibliography
From the Paper "According to a survey by the UK's Institute of Internal Auditors (2001), communication skills are considered to be the most prized attributes of the internal accountants. The changing role and functions of management accounting entail management accountants to actively participate within cross-functional teams. Thus, it is fundamental for these professionals to possess strong communication skills, as they are required to liaise with managers and guide the firm's strategic and tactical decisions on a daily basis (McNair, 2000). As such, communication skills are important for these professionals to communicate throughout the organization, which ranges from senior management to support staff levels, as well as vendors, competitors, and other professionals."
This paper argues that the U.S. health care system, especially in its life saving allopathic rather than preventative form, creates a cost conflict for consumers.
Abstract This paper explains that an extremely aggressive medical care system has created a cost prohibitive demand for heroic measures rather than a system that takes the whole of the community into account and allows the consumer preventative care and reasonable end-of-life care. The author stresses that the middle class is most significantly feeling the strangling effects of this out-of-control medical system and ethic. The paper concludes that the bottom line of this multivariate situation is that there seems to be very little real accountability. The paper includes many quotations.
From the Paper "For example, in a logical capitalistic situation, the price to utilize a particular piece of equipment should go down as demand goes up to offset the initial cost of producing and or acquiring the product. Yet, the costs seem to continue to rise regardless of how many other people have been charged $2,000 to use the equipment costing about 50 cents per minute to run the equipment for a test period of no longer than 30 minutes in most cases, or how long the equipment has been used. Though this is a far simplified analogy, sustainability should still be at the forefront of thought on the issue of equipment and supplies."
Abstract This paper discusses various accounting topics through a review of six newspaper articles. The paper outlines the accountant's role in an organization, provides an introduction to cost terms and purposes, and describes job costs and cost allocation. Performance measurement, compensation and multinational considerations are illustrated in this paper, as are the issues involved in inventory management and backflushing costing.
From the Paper "Key Company Assets Moving Offshore" proclaims the title of this recent article from the business section of The New York Times. A casual observer might shrug, but a student of accounting must turn a closer eye to this proclamation that American companies have been rapidly shifting more of their most valuable assets to tax havens, where the companies pay little or no tax on profits. What is so striking about this technique is that instead of simply moving their headquarters offshore, companies are also placing patents on drugs or ownership of corporate logos offshore, thus putting these "intangible assets" into tax havens as well. (C3)"
Abstract This paper is an article review on the topic of costaccounting in the healthcare industry. The article chosen discusses costaccounting practices within 19 hospital centers in Georgia, looked at various parameters such as number of revenue centers compared to service centers, types of accounting methods used, frequency of using a costaccounting methodology, software, etc.
From the Paper "This paper will review the study performed in the fall of 2004 and published earlier this year by Timothy Cairney and Kevin Bennett (2005) titled: Support Department Cost Allocations in The Georgia Healthcare Industry. Tim Cairney is an assistant professor of accountancy with specialized interests in cost and management accounting. His partner, Kevin Bennett, is an assistant professor of health services administration in the Georgia Southern University system. Both are well published. While interest in cost accounting methodologies for the healthcare industry are growing based on the number of recent non-fiction books (including text books) on the subject as well as the dramatic increase in colleges offering specific courses on the topic, Cairney and Bennett report that: "sophisticated support cost centers are used less than may be expected given the complexity of the healthcare firms' operation" (p.90)."
Abstract This paper examines activity based costing (ABC) which is an effective business management tool that will enhance and support a total quality management (TQM) environment. ABC analysis provides the information necessary to make business decisions such as determining if investments in efficiency initiatives, such as just in time (JIT), are warranted. When implementing ABC, management should use proven project management methodology to minimize the risk of failure. ABC is an effective total quality management tool, and supports just-in-time manufacturing methods in several companies as detailed in the paper.
From the Paper "After developing ABC in the 1980?s, Robin Cooper and Robert S. Kaplan have written extensively about its benefits (Shih-Jen & Holinda, p. 46). ABC is defined as a "costing system that identifies the various activities performed in a firm and uses multiple cost drivers"to assign overhead (or indirect costs) to products? (Siegel and Shim 2000, p. 15). ABC seeks to accumulate and allocate factory overhead costs to products (or services) by using focused drivers, such as, quality inspecting, moving, assembly, and matching (Warren, 2002, p. 328). Proponents of ABC cite many examples where cost accuracy is superior to traditional costing methods that use cost bases such as units produced, labor, or machine hours used (Warren, p. 421). "
A paper that outlines the various defects of the standard based costing method and how it does not effectively measure the manufacturing environment of today.
Abstract The paper explains that in production organizations, the basic concern of the management is to have smooth operations with the least cost possible. There the existence of cost is measured by the tangible output each component of the department produces and income is compared to the cost incurred. The paper shows that a system that is set for measuring the performance level of the tangible assets is known as a standard based cost. The production level is measured periodically and compared with the actual costs incurred. Any deviation from the original cost is considered as variance and hence they are measured separately. The paper discusses that the overall costing structure is dependent on the standard costing method and performance is also evaluated on this basis. The paper shows how, in the recent years, the structure of the manufacturing environment has changed the way management view standard costs. Since most of the work is performed on a large scale and depends on highly innovative technology, many argue that the concept of standard costing has become redundant and ineffective. The paper analyzes this concept.
From the Paper "Standard based costing allows the business to plan its cost according to the level that favors the management in optimal usage of resources and minimum cost price. There are two types of standard that could be used to measure. One is ideal standard where the price is planned to the minimum compared to manufacturing capacity. Second attainable standard where the overall lowest price is noted for costing and a considerable level of efficiency is noted. The costing system does not expect 100% capacity but it does try to minimize spoilage percentage. Thirdly, direct material and labor standards where per unit material and labor is noted for production of per unit of the product. Through these methods it is clear that the standard based costing system is not usually attainable and hence subject to criticism. The reason being that direct labor and direct material cannot be accounted for if the products are lying idle at warehouses in case of emergencies."
Tags: WIP, accounting, budgeting, information, system
Abstract This paper is a report showing how management accounting techniques (e.g. accounting for material costs and accounting for overheads) could be usefully introduced into a business. In today's global society, many advanced management accounting techniques are being developed and used. Without these, a company may not survive in the long run. The Crown and Thistle Complex is recommended to use cost-volume-profit (C-V-P) analysis, cost behavior information and activity based costing to stay ahead of its times in its quest to provide excellent services.
Abstract This paper provides a basic introduction to ABC (Activity Based Costing) methods as a managerial accounting technique, a comparison to traditional based methods, benefits and disadvantages of ABC. The paper also includes an analysis of ABC methods as a TQM (Total Quality Management) component and provides a summary analysis of the system.
Table of Contents
Abstract
Introduction to Activity Based Accounting Uses for ABC
Implementing ABC
Advantages of ABC Costing Disadvantages of ABC Costing ABC versus Traditional Accounting The Concerns of Activity Based Management
Summary Analysis
References
From the Paper "Activity-Based Costing (ABC) arose in the 1980s from the increasing lack of relevance of traditional cost accounting methods. The traditional cost accounting methods were designed around 1870 - 1920 and in those days industry was labor intensive, there was no automation, the product variety was small and the overhead costs in companies were generally very low compared to today. However, from the 1960s - particularly 1980s - this changed rapidly. Activity Based Costing is based on a simple principle: activities consume resources and customers consume activities. Associating the labor and overhead expenses of the business with the activities that consume those resources provides valuable facts. ABC defines categories of activity in overhead departments, which on the one hand are recognizable to overhead department managers but, on the other hand, are driven by factors (cost drivers) which are characteristic of products and other cost objects. This allows a much higher proportion of total company cost to be allocated to products according to causation. Ultimately, ABC provides accounting data points that can be used to improve decision-making and identify cost improvement opportunities. The basic building blocks for ABC are activity accounting spreadsheets for each element of a business. The workload of each activity is measured resulting in a cost per output. "
Tags: comparison, flaws, component, cost, data, labor, y
Discusses a costing system proposed for a computer hardware manufacturer who is also going to develop computer software to be sold along with the hardware.
Abstract This paper first recommends a costing system and then states how variances from budget would be identified. It further goes to state how the budgets for the cost centers should be set. Then it mentions some possible sources of funds for financing the project and, in conclusion, mentions how the financial ratios of the company will be affected.
Method of costing How variances can be identified
Method of budgeting
Sources of finance
Effect on ratios
Comparison with system in operation
From the Paper "There are many methods of costing that could be applied to this scenario. The current system in place is absorption costing. This is a very traditional approach, in which it is assumed that the total overhead expenses of the company are related in some way to the number of labour hours or machine hours used. In this case, all the overheads are allocated on one basis. If labour hours are used, then it the total overhead amount is divided by the total labour hours expected, and then the amount of overhead is allocated to each product based on the total amount of labour hours it uses."
Abstract This paper discusses Activity Based Costing (ABC), Process Costing and Job Order Costing. While all types of costing strategies require some commitment in terms of resources to implement, the cost-benefit is highly attractive for any organization interested in streamlining its operations and therefore one strategy should be chosen relative to the particular line of business of the organization.
From the Paper "Accounting systems, regardless of orientation, all have some general characteristics in common. Accounting systems should be technologically enabled to generate various reports in order for management to monitor firm performance as well as compliance. Additionally, the accounting system should be enabled to allow for tax, payroll, and other special reports to be derived from it (Bhimani, 2003, p.14-17. Finally, accounting must be forward looking in that firm strategy as well as its line of business should adopt a particular accounting system that best suits its operations as well as its long-term strategy. Activity-Based Costing Activity based costing is a system of accounting based on the allocation of resources and accounting for the value of those resources in relation to a specific task or activity. "
