One of the many information that a company should know is the cost of their products or services. This will be used to evaluate the efficiency of the company and its performance. There are many methods that the company can use to evaluate the cost of the products. There is the use of the traditional cost allocation or the activity-based costing. For the past years, activity-based costing is the more commonly used. This is because it is considered to be more accurate than the traditional cost allocation.
Activity based costing is simply the method of determining the cost of the products or services base on the specific activities that contributes to the cost of the products or services. This gives accurate results and is a good basis for decision making for the company. On the other hand, traditional cost allocation is the method that is based primarily on organizational activities. Because of this, there are several problems that the traditional cost allocation faced like including in their calculation the cost of idle products. But even if this is the case, the traditional cost allocation is still the main methodology that some companies used while the activity based costing provides supplementary information for the company to reinforce the traditional method (Gale, 2006).
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Profit is an important resulting index of companys activity. It is the main indicator of the effect received as a result of the companys operating at the market. Profit can be determined as the difference between incomes and expenses. From economical point of view, profit is the difference between receipts and disbursements, from administrative and accounting point of view profit means the ...
It is the objective of this paper to determine of Steinway piano is a good candidate for the use of activity-based costing. Steinway is a company that manufactures high quality pianos for over a century. The manufacturing of the piano is made by well-trained workers. It will start on the production of the soundboard of the piano. There are also workers that are trained for the attachments of the strings to the piano. This is a very difficult work and the on that will be working on it needs to master the proper way of doing it. Other parts of the piano are manufactured by other groups. The parts are then assembled to a beautifully made piano (Steinway & Sons, 2008).
It is said that the activity-based cost is focused on the specific activities. In the case of the Steinway piano, the production of every part of the piano is the key activity. The cost of these activities will be of great importance in the evaluation of the cost. The Steinway piano is a good candidate for activity based costing because it can accurately measure the cost of these activities. They give more focus to the production of every piece that is needed for the production. The different activity groups are also known which helps to make the evaluation faster.
Each key activity is known very well that the source of the cost for every activity is easily determined. This will also help assigning cost to every activity even faster. Aside from these, the rate of work is also important in the analysis of the cost in activity-based cost. This will depend on the number of hour that the workers worked and the number of hours that machines and equipments are used. It is clear that these data can also be known and are not hard to evaluate. The wages and salary of the workers are will be known and the cost of the production can be properly determined with accuracy. The number of the units that are produced by the workers are can also be determined because every part of that are made belong to a group that will be put together to make the piano.
There will be no idle product that will be included to the calculation of the cost of the piano. The activities that are considered by the by the activity-based cause is not only in the production process, but also includes the selling and delivering. The cost of these activities affects the cost of the piano. These were not included in the focus of the Steinway production of piano. On of the main function of the activity-based costing is to determine selling costs and administrative costs. This is lacking on the presentation of the Steinway piano, and in order to determine the costs of these activities, the use of activity-based costing is needed.
The Essay on Activity Based Costing Costs Cost Activities
Introduction Activity Based Costing (ABC) addresses internal operating concerns and is an augmentation to the traditional cost management system. It is not a replacement for traditional accounting, but makes use of the source documents provided from standard job costing systems. ABC looks at a business unit^aEURTMs events as cost drivers and assigns all company resources and accumulated costs ...
The use of traditional cost allocation is also possible. This methodology gives adequate results for the cost of the materials and labors. The problem with this is that it is based on the cost of departments and not on the specific activities in the department. The main departments that are considered are the production department and the nonproduction department. By doing this, the information on how the costs are allocated within the part of the department cannot be determined. All the data from the direct-labor hour and machine hour within the department are combined to a to a single cost. Therefore, it may include some capacities that are not really part of the production.
This gives additional cost and tends to give less accurate results. This would result to error in judgment and in decision-making. One of the things that the traditional way cannot determine properly is the value-added cost and the non-value added cost. Value-added cost is the cost that cannot be eliminated without changing the value of the product while the non-value-added cost is the cost that can be eliminated without much effect in the value of the product. In the traditional way, non-value-added costs can be might be added to the added-value costs in a department, making it hard to determine which is value-added and which is not.
The value of the product greatly affects the profit of the company and so determining non-value-added costs could be crucial. The decision of the Steinway Piano should result in minimizing the non-value-added costs or completely eliminating them. If there would be no information that will determine non-value-added costs, the Steinway Piano could not decide on what factors to minimize or eliminate. Because of this, the decision of the manager cannot bring a major improvement on the value of the piano.
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Every day in life, we face conflict and change; whether it is large in its impact or small. Generally, change is often perceived as something that is negative, or at least does not come with great ease. Many of us are creatures of habit, and it can be difficult to change our ways, or our work ways; even if it is ultimately for the better. During the past several years, the 27 bed emergency ...
Reference
Gale, T. (2006).
Activity-based Costing. Retrieved January 24, 2008 from http://www. referenceforbusiness.com/management/A-Bud/Activity-Based-Costing.html.
Steinway & Sons. (2008).
Factory Tour. Retrieved January 24, 2008 from http:// steinway.com/factory/tour.shtml.
