Activity Based Costing (ABC)
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This case study explains how companies are moving away from the conventional method of costing to activity based costing (ABC) and discusses whether this would be useful to agricultural enterprises. It also discusses if the Farm Council Case did not use this method what dysfunctional decisions could be made using traditional cost allocation and why the ABC method is generally superior.
From the Paper:''Distributors require expenditure information not just to keep track the price of manufacturing processes, but in order to construct strategic management choices -strategic choices in regards to cost, the unbundling of value added services, customer productivity, vendor productivity, and whether or not to automate processes. ABC provides a new state of mind, one which establishes with consumer necessities and ends with the price to serve those requirements (Harvey, 2003).
''Traditionally costs have been categorized as either variable because they were thought to differ with volume or fixed because they didn't differ with volume. The author suggests that costs should not be thought about as fixed or variable costs but rather as costs that are associated with the activities that are done for customers. Activity-Based Costing (ABC) advances the difficulty of accounting for expenses from a viewpoint that is completely dissimilar from a fixed cost/variable cost categorization system. ABC tries to give one a better representation of ones expenses of doing business, first, by recognizing activities in the business and the resource expenses connected with them and, second, conveying those actions to matters such as clients, goods, or procedures. Instances of actions in an allocation business are: getting goods from vendors, getting goods, selling goods, taking orders, and distributing goods. Clients, goods, and procedures use resources and, consequently, sustain their costs. ABC assigns and does not allocate costs to these things founded on their pace of consuming actions (Harvey, 2003).''
Sample of Sources Used:
- Caplan, Dennis. (2009). Management Accounting Concepts and Techniques. Retrieved January 3, 2011, from Web site: http://www.denniscaplan.fatcow.com/Chapter01.htm
- Case Study No. 1, Farm Financial Standards Council. (2006). Retrieved January 3, 2011, from Harvey, Roger K. (2003). Throw Out Fixed and Variable Cost Thinking--Bring In Activity- Based Costing for Distribution Decisions. Retrieved January 3, 2011, from Web site: http://www.valueassociates.org/Web%20Articles/White1.htm
- Saldarini, Katy. (2000). Scholars tout benefits of activity-based costing. Retrieved January 3, 2011, from Executive Government Web site: http://www.govexec.com/dailyfed/0200/022300k1.htm
Cite this Case Study:
Activity Based Costing (ABC) (2013, May 03) Retrieved February 26, 2020, from https://www.academon.com/case-study/activity-based-costing-abc-153109/
"Activity Based Costing (ABC)" 03 May 2013. Web. 26 February. 2020. <https://www.academon.com/case-study/activity-based-costing-abc-153109/>