Abc Used Internationally

ABC Is Still Relevant For Companies In All Geographical Locations

Introduction

* Costing system are information system. They required a specific type of information such as direct labour hours and units produced, to be of value. It is from the input data that product cost

* It is from the input data that product costs and other information are determined according to the specific costing system defined methodology.

* The results obtained would depend on the costing system used, since the same input data could be used in different ways, in this case the traditional costing system or an activity based costing system to be used.

1) Traditional Costing System

* It is a well-known fact that the traditional costing systems utilize a single, volume-based cost driver. This is the reason why the traditional product costing system distorts the cost of products.

* In most cases this type of costing system assigns the overhead costs to products on the basis of their relative usage of direct labor. For this reason traditional cost systems often report inaccurate product costs.

* The problem with this approach is that for most overhead activities, the proportions of the activity actually consumed by a specific product, does not universally correspond with a single cost driver.

* Fundamentally, traditional costing systems try to assign cost directly to products rather than to activities first and then from the activities to product units.

* The traditional costing systems only have one or a few indirect cost pools for each department or whole plant.

2) Activity Based Costing (ABC)

* The underlying assumption of activity based costing is entirely different from that of conventional costing systems. Activity Based Costing systems have activities as the fundamental cost objects.

* Activity based costing is a different approach and improves control of overheads by a cost/cause relationship, that are activity and cost.

* The...