Allocating Fixed Cost and Budgeting Research Assignment

Allocating Fixed Cost And Budgeting Student’s Name
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Part 1
Allocating Fixed Cost and Budgeting
How Can Activity-Based Management and Activity-Based Costing (ABC) Benefit An Organization?
Activity-Based management refers to a technique of that focusing on identifying and analyzing a company’s day to day business activities with the aid of activity –based costing. The aim of the identification and evaluation is to undertake a value chain analysis or restructuring operations to boost the existing strategies and police. (Coombs, Hobbs, & Jenkins, 2005) On the other hand, activity-based costing management refers to an accounting approach that permits firms to collect data and information concerning their operating cost. Therefore, since the two concept, work together, they tend to offer similar benefits to a company,
First, the ABC system creates a superb business operation by offering a standard system of managements that induces the workforce to fully comprehended and participating towards achieving a firm’s mission and vision (Hermanson, Edwards, & Invacevich, 2011). Another benefit is that the ABC system helps the pursuit for constant upgrading of all the business activities by offering managers with latest perceptions and understanding on various customers of activities and business operations as well as allowing manager to employ relevant and new insights on management practices into business operations and customers’ activities to enhance greater value added by all stakeholders. In addition, ABC helps in reducing wastages, especially the production sectors by identifying loopholes and aspects of inefficiencies as well as using the cost benefit analysis to understand where the cost are going and pointing out the unnecessary costs (Coombs, Hobbs, & Jenkins, 2005).
The ABC methods tend to differ from the allocation method, which is also known as the traditional costing. First, between the two accounting method, ABC is deemed more accurate as it consider important aspects before assigning cost into products. For example, unlike the allocating method, which primarily considers charging cost basing on departments, ABC considers expenses which were not directly incurred into the production system. Another difference is that ABC uses allocates costs by identifying parts of products whereas the allocating method simply accumulate all type of costs together (Martin, n.d). Lastly, while ABC can be used to calculate true cost by random allocation of cost based on aspects such labor machine hours, the allocation method cannot because it depends on single overhead pool (Martin, n.d).
Main Characteristics of ABC
The ABC system has three main characteristics, which include; indemnification and categorizing of activities in waterworks operations, evaluating costs that have directly impacted on particular each activity (Hermanson, Edwards, & Invacevich, 2011). Evenly assigning costs to each activity after identifying them. Identifying cost is a crucial step as it avoids wastage of time focusing on a wider scope of a project as this only focuses on costs related to the process rather...