Activity-Based Costing Accounting

Activity Based Costing Accounting

What is Activity-based costing accounting?

Activity-based costing accounting (ABC) can be known as one of the accounting approaches which identifies all the moments performed in the organisation. Activity-based costing accounting one of the mechanisms of allocating indirect cost. Indirect cost can also be known as an overhead cost which includes factory overheads (Rent, wages, machinery check, production cost) Office & administrative overheads(salaries, electricity charges, cafeteria etc.) Selling & distribution overheads (Printing expenses, advertisement expenses etc.). It can be either variable cost or fixed cost.This activity-based accounting will be used for targeting of reducing cost. Accounting based costing accounting works best in the tangled environment where there are abundant products and machines and complex process which is not that much easy to sort out. This activity-based costing accounting helps us in verifying which that which product and service are more beneficial for an organisation and which one is selling at less. ABC Methodology focuses on different cost allocation in operational management. The different type of cost that includes Activity-based costing accounting are Fixed cost, Variable cost and Overhead cost.

Privileges of Activity-based costing accounting:-

  • Activity-based costing accounting brings reliability and accuracy to the cost of production.
  • Activity-based costing accounting helps in improving the efficiency of the production process.
  • It helps in eliminating non-essential cost.
  • It helps in giving accurate information regarding product cost.
  • It helps in discovering the best business decisions regarding product and price.
  • Different basics of activity-based costing accounting:-

The activity-based costing system refers to the aggregate of the cost of all actions that are involved from production process to delivery process. All the actions which we do on product or services. Production is taken separately, and we do not involve any direct cost to the production which we do in the company. When the student is studying accounts, and he/she gets an assignment on activity-based accounting, the student must be having enough knowledge of how the organisation spends on the product and the total cost which the organisation is spending on the product. It is the total cost which the organisation spends on the activities which are necessary to get the final product and deliver it to the customer.

How to design and implement Activity-based Costing System

To design and implement Activity-Based costing system of an organisation person need to have knowledge about all the activities which are necessary for the production of the product/service and to deliver it to the customer. And this is not easy to learn from books or learning material which are available on the search engines; We have the activity-based costing experts who have studied accounting for their graduation/post graduation. They have vast knowledge about the activity-based costing which makes them expert to provide quality content for assignments help. There are different implementation areas:- Service diversity, Stiff competition, customer diversity, Product diversity, High overheads ETC.

Difficulties faced while applying Activity Based Costing System

Activity-based costing system in total is a vast process to follow because it starts with calculating the cost involved in the activities which the organisation needs to do on the product/service to the cost which is spent till the product is delivered to the customer. The plan of activity-based costing passes from the higher management of the organisation, and their agreement is very necessary to manage the costing which will be applicable on the costing on the products.

The importance of making the activity-based costing and the person is chosen for making the activity-based costing system is to have a look at that less time, and spend less money on the production of a product or to generate service.

The people in the team who makes activity-based costing system for an organisation requires knowing all the fields necessary which includes finance, Accounting, Information Technology, Marketing, Production and Engineering department.

Need for Activity-based costing:

Activity-based costing is very necessary for any organisation because it helps the organisation to minimise the cost of production or service which is provided by the organisation. The people involved in making the activity based system are also the higher management of the organisation which helps in letting know where and how the money must be spent. The activity-based costing system should be introduced to the organisation when profits are decreasing while sales are increasing When pricing decisions are not taken by using cost reports by the marketing team.

Activity-based costing system is the essential system which the management must handle with care because it will make the company grow and compete in the competition. To learn how to make the activity-based costing system one must have enough knowledge about which can be easily extracted from our experts and the student can be expert by getting the help in assignments which are assigned to students.

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