# 会计代写|中级管理会计代写Intermediate Management Accounting代考|ACCT1006

## 会计代写|中级管理会计代写Intermediate Management Accounting代考|ABC and the traditional approach compared

The traditional absorption costing approach and the $\mathrm{ABC}$ approach have certain points in common. Both approaches adopt a two-stage allocation process for assigning overhead costs. With the traditional approach, overhead costs are first assigned to product cost centres. The cosls accumulaled in each cosl centre are therl charged to unils of oulpul using an uverhead recovery rate. With the $\mathrm{ABC}$ approach, overhead costs are first assigned to cost pools. The costs accumulated are then charged to units of output using the cost driver rate for each activity.
At the first stage of allocation, the cost centre in traditional absorption costing and the cost pool in $\mathrm{ABC}$ fulfil similar roles. Both provide a location for assigning overhead costs. However, a cost centre is usually based around a department (see Example 4.5) whereas a cost pool is based around an activity (see Examples $5.1$ and 5.2). At the second stage, overhead recovery rates and cost driver rates also fulfil similar roles. Both provide a means of assigning overhead costs to units of output. The two differ, however, in the approach adopted.

We saw in Chapter 4 that overhead recovery rates are typically based on machine hours or, more usually, on direct labour hours. With the traditional approach, it may be appropriate to assign some overhead costs to products using these bases. The cost of running machines (electrical power, oil and so on) will normally vary according to the number of machine hours. Similarly, the cost of supervision may vary according to the number of direct labour hours. Many overhead costs within a modern manufacturing environment, however, do not vary on the basis of either machine hours or direct labour hours. Traditional absorption costing does not recognise this fact whereas $A B C$ does.

## 会计代写|中级管理会计代写Intermediate Management Accounting代考|Benefits and costs of ABC

By adopting a more enquiring approach to assigning overheads, $A B C$ can provide a more accurate cost figure for each unit of output. This may prove invaluable when assessing product profitability and when making pricing and product mix decisions. ABC can also help managers to improve their understanding of business operations. This, in turn, should help them find ways of improving performance and cutting costs.

Despite its apparent advantages, critics point out that ABC can be a costly exercise. Setting up the costing system, as well as updating it, can consume a great deal of resources. Running an $\mathrm{ABC}$ system can also be complex and time-consuming, particularly where business operations involve a large number of activities and cost drivers. Management reports generated from a complex $A B C$ costing system are also likely to be complex. If managers find these reports difficult to understand, the potential benefits of employing $\mathrm{ABC}$ may never be realised.

Where products or services have similar levels of output involving similar activities and processes, or where overheads form a relatively low proportion of the total costs, the more accurate measurements provided by $\mathrm{ABC}$ are unlikely to lead to strikingly different outcomes from those obtained under the traditional approach. Thus, opportunities for better pricing, planning and cost control may be few. In such situations, switching to an ABC system would be difficult to justify.

Measurement and tracing problems may arise with ABC. Not all costs can be easily traced to a particular activity. Nevertheless, all activity costs have to be assigned to one cost pool or another. To ensure that all these costs are taken into account, some may be assigned to cost pools on an arbitrary basis. Poor quality data on activity costs may also lead to arbitrary cost assignments. A final issue is that the relationship between activity costs and their cost drivers may be difficult to determine. Identifying a cause-and-effect relationship can be difficult where activity costs are fixed and do not change with changes in operating activities. As a result of these difficulties, cost information derived from an $\mathrm{ABC}$ system may prove to be based on almost as much arbitrariness as is the case with information derived from a traditional approach.
Finally, $\mathrm{ABC}$ is criticised for the same reason that traditional full costing is criticised – it does not provide relevant information for decision making.

# 管理会计代考

## 会计代写|中级管理会计代写Intermediate Management Accounting代考|Benefits and costs of ABC

ABC 可能会出现测量和跟踪问题。并非所有成本都可以轻松追溯到特定活动。然而，所有活动成本都必须分配到一个或另一个成本池。为确保将所有这些成本考虑在内，一些成本可能会被任意分配到成本池中。低质量的活动成本数据也可能导致任意成本分配。最后一个问题是活动成本与其成本驱动因素之间的关系可能难以确定。在活动成本固定且不随运营活动变化而变化的情况下，识别因果关系可能很困难。由于这些困难，成本信息来源于一个乙C系统可能被证明是基于几乎与从传统方法获得的信息一样多的任意性。

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