Activity Based Costing

In: Business and Management

Submitted By mcswaiah
Words 612
Pages 3
Activity Based Costing
By: Azalea McSwain
ACC310: Cost Accounting 1
Instructor: Susan Paris
Date: April 18, 2011

Outline
I: Introduction
a. What is Activity Based Costing
b. How Does it Work
II. Body
a. What does ABC do for Firms
b. How to develop the ABC system in a firm
c. What are the Steps
d. Examples
III. Conclusion
IV. References

Abstract Activity Based Costing was developed in the manufacturing sector of the United States during the 1970’s and 1980’s. This system is used as a method for developing cost estimates in which projects were discrete or subdivided activities. ABC systems calculates the costs of individual activities and assigns costs to their related cost object such as products and services on the basis of the activities performed to produce each product. The Chartered Institute of Management Accountants (CIMA) technology defines ABC as “an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. (Edwards, 2006)” This paper will address what the ABC system does for firms which use it, how to develop such a system in a firm, the steps of the ABC system and some common examples.
Activity Based Costing
Introduction
Activity Based Costing (ABC) addresses internal operating concerns of a firm and is an augmentation to the traditional ledger based cost management system. It doesn’t replace traditional accounting, but it makes use of the source documents provided from standard job costing systems. Instead of being heavily labor based, ABC looks at a business unit’s events as cost drivers and ascribes all company resources and accumulated costs against those events in a time-phased sequence. Management uses revenue tracking which provides a different perspective on the profitability of products and services, and also an insight into pricing. Middle…...

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