- Internal Code :
- Subject Code : HI5017
- University : Holmes Institute
- Subject Name : Accounting and Finance
Managerial Accounting
Introduction to Activity Based Costing
The journal reflects about the learning that has happened during completing the unit. The unit described about a particular costing method that in the case is about Activity based costing. Features of Activity based costing with the application of system in a Taiwanese company has been discussed. The journal will describe the reasons for interest in the topic. With that learnings that have been gained while doing the individual assignment on Activity based costing will be described and overall experience while researching and reviewing of literatures will be described.
Topics of Interest
The topic that has been chosen for the study is Activity based costing. The topic interests me the most as the relevance of the topic has increased over time. Activity based costing is gaining popularity over time and is helping business in defining their cost in a more appropriate manner. The costing system draws a cost for a function and then traces it back to the product. This helps in assigning cost as per the order and the usage of materials.
The topic was interesting as in the present scenario for businesses to make profits, they are required to make sure that costing is done in an appropriate manner. As a student of management accounting this topic is interesting as it will be beneficial in the future. This will help in understanding the cost of products in a better manner and also when in future while working in an organization understanding the importance and features will help in adopting it in a better manner. It will also be interesting to understand the method by which product cost can be accurately defined. So, overall Activity Based Costing method is interesting as it helps in determining the cost in an appropriate manner and understanding the concept will be beneficial in the future for getting an appropriate job in the market.
Through the assignment, I was able to learn about the activity based costing and its features. The assignment also helped me in understanding the benefits that will arrive by opting for the activity based system. Also, it made me learn about the method of determination of price through Activity based costing.
Relevance of Costing System
Activity Based costing is a very relevant business method in today’s time. The very basic concept of activity costing helps in determining the prices in an appropriate manner. The concepts states that the activities are the ones that are consumed by products and then these activities consume the resources that are undertaken by the business. This helps business in having a better idea and also investments can be done in a better way. This type of costing is very relevant to the business as with this investment can be estimated in a much better way. When the cost per product can be estimated than the total order cost can be derived easily as per the quantity required of each product. This will help in better estimation of pricing for the goods and services. Also, from appropriate costing decision making of the firm or any business will improve. The cost that is being wasted can also be identified easily and then accordingly measures for the correction can be taken. A very helpful insight can also be derived from the review of Taiwanese company. The company was into the business of dyeing painting etc. The company used to follow traditional system which was creating a problem as in that case the cost was not being connected with the volume that has been generated by the company. This was creating a misappropriation of prices. Once the company adopted ABC method, it was able to bifurcate the cost according to the steps taken. This helped company in analyzing the cost with every order and then accordingly set the prices.
So, the learning that were derived was that the method of ABC costing will help in better estimation of prices. Prices will be set as per the required steps and the material that is being used in the company. This method is a better method than tradition costing as in traditional costing overall steps cost is calculated which makes it complex to set the prices. Hence, ABC costing helps in achieving better results than any other method of costing.
Research Experience
Overall the experience of researching about the Activity based costing was enriching. To find a particular journal article was a task as in journals were available about Activity based costing but specific adoption by a company for the method were less. Various journals were researched and then finally Taiwanese Textile company case study seemed appropriate for the research as it helped in understanding he difference and the benefits that will be derived by the company in adopting Activity based costing. Literature review was a good experience as it helped in understanding the process and the changes due to which the method of costing was adopted. It helped in enhancing the knowledge and was interesting to read about it.
There were certain challenges that were attached to the research. The very first being finding the journal. Another being understanding the usefulness of method to the users who are internal. Costing helps the management of company but particularly how it helps and then understanding the benefits with different team’s views was bit difficult. Also, to understand the literature was bit challenging as to understand the process of how the team was formed and then accordingly things were managed is a task. Understanding a concept is easier but understanding it within a practical situation provides certain challenges but also helps in enriching the knowledge database.
Conclusion on Activity Based Costing
Overall doing this research helped in understanding the concept in a better way and also enhanced the knowledge accordingly. The various features and activities of ABC method were understood and with that there were certain challenges that were also faced during the time of research. But, in the end learning covered it all and gave an insight about the method.
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