Thursday, November 28, 2013

It is argued that the Activity Based Costing approach produces more accurate product cost information. Critically evaluate the strengths and weaknesses of this statement.

Before the 1980s, majority of the companies were manufacturing units, producing a limited straddle of products, with corporal and complicate off labour universe the paramount follow. Since go to sleep costs were low and development computing costs high, the companies were at ease using conventional product costing methods. The ontogeny of the 1980s, brought with it intensifier competition across the globe and growing wideness of overheads spot that of direct labour declined (Drury, C., pp 225). Also there were problems that were being set about(predicate) with handed-down cost systems. The use of traditional costing belong to a distortion of data as it allocated indirect manufacturing costs by using volume-related formulae. These formulae were actually ground on direct labour or direct secular and the percentage contributed by these costs towards the product or inspection and repair was a relatively small amount. The information thus provided by these systems was inaccurate and trey to incompetent decisions being taken on account of matters much(prenominal) as capital investment and product policy. The information would likewise misdirect the management in terms of the pecuniary home of the company, this broaden to decline in profit (Macintosh, N.B.). indeed the changing corporate environment and problems with the traditional costing systems brought about a need for an alternative cost system that was two innovative and sophisticated.
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This alternative as suggested by Cooper and Kaplan (1988) was practise Based Costing ( alphabet) based on the following sys tem (Harvard Business Review (1988)): V! irtually all of a companys activities populate to support the production and delivery of todays goods and services. They should therefore all be product costs. Further on they published a series of articles that explained the key ideas that supported first principle type systems. These articles lead to an appreciable amount of popularity and implementation of ABC by a number of companies, so much so that a... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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