HI6006 Competitive Strategy Editing Service
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In todays world’s, the business environment is going at an increasing pace and most of the business are focusing on making more and more profits. In such a situation, as the sales of the business increase so does the variable costs which are associated with the sale. Therefore, it is very important for the business to choose an appropriate costing technique which can effectively record and analyze the costs of the business. The treatment of overhead costs of the business are important aspects which needs to be considered by the management and appropriate allocation of such costs are also important. In the new era of modernization, most of the business intelligence are utilizing activity-based costing techniques for the purpose of identifying and allocating costs of the business (Stefano and Casarotto Filho 2013). Traditional costing techniques are unable to keep up with the changing environment of businesses and therefore activity-based costing techniques helps businesses to overcome the deficiencies of traditional costing techniques and also helps in decision making process of the business.
Activity-based costing techniques allows business to effectively apportion the costs of the business which are indirect in nature on the basis of the activities which are undertaken by the business for production the products of the business. Activity based costing is also applicable for organizations which are engaged in the manufacture of multiple products of a business (Estampe et al. 2013). Activity based costing techniques of a business allows the management of companies to identify the costs and its respective activity and allocate on the basis of the same (Kaplan 2014). The working process of activity-based costing technique is unique in nature than traditional costing techniques which only considers machine hour as the basis for allocating the costs of the business. In case of activity-based costing the nature if activity is considered and then the respective cost unit is identified by the business.
Activity based costing is an efficient way of allocating costs to respective cost drivers of the business and also helps in the decision-making process of the business. Activity based costing techniques also plays a vital role in setting the selling price of the products which are manufactured by the business. In details, Activity based costing the costs which are incurred by the business are classified on the basis of short term costs and long-term costs of the business (Frazier 2014). The short term costs of the business are generally allocated on the basis of the volume related cost drivers of the business. Some of the examples which can be provided for volume related cost drivers are machine hours, labour hours and direct material cost. In case of long-term variable costs, the first step is to identify and analyze the nature of the costs and the activity which incurs such costs (Donovan et al. 2014).
The objectives of Activity based costing in a business environment are listed below in details:
In order to effectively analyze the system of Activity based costing, research papers written by different authors are considered. The journal article will further explain the application and usefulness of Activity based costing in a business. The journal article which are considered for this assessment are listed below:
Article 1: “Activity Based Costing in Services Industry: A Conceptual Framework for Entrepreneurs”
Article 2: “Activity based costing (ABC) in the public sector: Benefits and challenges”
The above journal deals with organization which operates in different sector entirely. The journal article portrays and gives more insights into the process of Activity based costing.
As per the journal paper, the focus of the researcher is on a service sector industry. Just as the business engaged in manufacturing industry has attained growth in recent years so has the service sector industries in the country. The author has effectively identified that in the changing environment, the overall increase in the scale of operations results in tremendous increase in the costs which are associated with the business. Most of the businesses suffer from problems in managing the profit margins and cost of the business (Ross 2016). Therefore, it is an essential requirement of businesses to select an appropriate cost management system which can effectively and accurately show the costs which re incurred by the business during the year.
The research paper shows the costing techniques which are used in a business environment and how the same can reported and used for the decision-making process of the business. The journal paper effectively describes the Activity based costing and the key steps which are followed by businesses for identifying the cost components and also the key cost drivers of the business. The research paper further shows that the points of difference between t6raditional costing system and Activity based costing system (Onat, Anitsal and Anitsal 2014). The main deficiencies of the traditional costing system which can be identified is that the costing process is unable to detect non-financial factors which can affect a business, inaccurate cost information which is generated by the traditional system. The journal paper specifically identifies that traditional costing system is inappropriate for a business which is engaged in service industry. Therefore, the researcher is of the opinion that Activity based costing is best available option for service sector business in order to effectively treat the costs which are incurred in a service sector business. The journal paper highlights certain advantages which is related to application of Activity based costing in a service sector business which are brings about better presentation of the costs of the business, cost reductions, improve the costing for the product and also helps in the decision-making process of the business.
Thus, the above discussion effectively shows the superiority of Activity based costing in comparison to traditional costing system. The advantages of Activity based costing are effectively shown by the researcher in the journal paper and outline the reasons due to which service sector enterprises can effectively implement such a process (Dumas et al. 2013). The analysis also reveals the process which is applied while following Activity based costing in a business. The further research question which arises from the analysis of the journal paper are listed below:
As per the Journal which is shown in the research paper clearly shows the comparation which is shown between traditional costing system and Activity based costing system when applied in a business. The journal also lists out the advantages which are associated with the method of Activity based costing. The journal shows the implementation of Activity based costing technique in a public sector enterprise.
The problem statement of the research paper shows that many of the researchers and academician are of the opinion that Activity based costing are only useful in businesses which have large business size and has a large scale of operations or on a business which is engaged in the production of multiple goods or products or offer various services to the customers. However, the use of Activity based costing is much more extensive than what is initially portrayed. The assessment considers a public-sector enterprise which is engaged in providing services to the general public and the services which are provided are mainly overhead intensive and therefore the researcher is of the opinion that Activity based costing is a best option for such sector (Oseifuah 2014). The researcher further states that implementation of such costing practice will bring about transparency and accountability of the enterprise. The research is conducted considering the public-sector enterprises which are operating in South Africa and which are the grass root for service delivery in South Africa. The research aims to analyze how Activity based costing can be effectively implemented in the public-sector enterprises in South Africa.
The journal paper explains the process of traditional costing and how the same is applied in business. The traditional system of costing is often developed and implemented in businesses which has either a job process or a process costing system in place. The costs are allocated and divided on the basis of product which are direct expenses in nature and on the basis of period which are generally indirect in nature (Warren, Reeve and Duchac 2013). The apportion of cost is done on the basis of volume-based cost driver which may be machine hours. The deficiencies which are present in the traditional costing system are also highlighted in the journal paper.
The above figure is taken from the journal article and the figure aims to show a comparative analysis between the system of Activity-based costing and Traditional costing operation management techniques (Cooper 2017). On the basis of the analysis which is included in the research paper further research questions which can be developed are listed below:
The analysis of the two articles which is shown above reveals certain similarities and dissimilarities which are present which are listed below in details:
The analysis of the two research papers which is shown above effectively demonstrate the usefulness of Activity based costing in a business. The positives which are derived from the journal papers can be suggested to the management professionals who are working in Australia so that they can also bring about the desired improvement in the business structure of the companies. The specific outcomes are listed below in details:
Thus, from the mentioned points which are positives which can be derived from the analysis of the two journal articles can be incorporate by the management of companies in order to improve the reporting framework of the business which is in relation to the costs of the business.
Thus, from the above discussion regarding the costing technique of Activity based costing, it is clear that in coming time the technique will be applied by most of the business for the purpose of recording the costs of the business. The report shows analysis of two articles which are considered in the assessment relating to different sectors where Activity based costing can be applied and the same has also been a success. The report draws out the positives and future scope of research questions which are available for research. In addition to this, the report also shows comparative analysis of the results which are obtained from the analysis of the two articles. The report systematically discusses the similarity and dissimilarities between the results which are obtained from the two articles which are considered for this assessment. In the concluding part of the assessment. The key results which are established from the analysis of the two journal articles considered and the same is suggested to the businesses which are operating in Australia in order to bring about improvement in their reporting structure as well.
1. Cooper, R., 2017. Target costing and value engineering. Routledge.
2. Donovan, C.J., Hopkins, M., Kimmel, B.M., Koberna, S. and Montie, C.A., 2014. How Cleveland Clinic used TDABC to improve value. Healthcare Financial Management, 68(6), pp.84-89.
3. Drury, C., 2013. Costing: an introduction. Springer.
4. Dumas, M., La Rosa, M., Mendling, J. and Reijers, H.A., 2013. Fundamentals of business process management (Vol. 1, p. 2). Heidelberg: Springer.
5. Estampe, D., Lamouri, S., Paris, J.L. and Brahim-Djelloul, S., 2013. A framework for analysing supply chain performance evaluation models. International Journal of Production Economics, 142(2), pp.247-258.
6. Frazier, W.E., 2014. Metal additive manufacturing: a review. Journal of Materials Engineering and Performance, 23(6), pp.1917-1928.
7. Kaplan, R.S., 2014. Improving value with TDABC. Health care financial management, 68(6), pp.76-84.
8. Laguna, M. and Marklund, J., 2013. Business process modeling, simulation and design. CRC Press.
9. Onat, O.K., Anitsal, I. and Anitsal, M.M., 2014. Activity Based Costing in Services Industry: A Conceptual Framework for Entrepreneurs. Entrepreneurial Executive, 19.
10. Oseifuah, E.K., 2014. Activity based costing (ABC) in the public sector: Benefits and challenges. Problems and Perspectives in Management, 12(4), pp.581-588.