In this assignment set,
You will be writing a 200 words discussion post and 2 short replies to the given discussion posts 
The discussion ones will be due in 24 hours while the essay will be due at the end of the post.
Activity-based costing (ABC) is a costing method that allocates costs to specific activities, rather than departments or products. Discuss the concept of activity-based costing and its application in a company. Identify and analyze the different activities involved in the production process, such as product design, setup, and quality control. Explain how ABC can provide a more accurate representation of costs compared to traditional costing methods.
Essential Activities:
1. Reading “Principles of Managerial Accounting: Chapter 4” will assist you with writing this discussion forum.
2. Reading the article, “Activity-Based Costing” will assist you in writing this discussion forum.
3. Reading the article, “The Disadvantages and Advantages of Activity Based Costing”
will assist you in writing this discussion forum.
4. Reading the article, “Computation of Unit Cost Under Activity-Based Costing” will
assist you in writing this discussion forum.
5. Watching the video, “Activity-Based Costing – Explained” will assist you in writing this
discussion forum.
6. Watching the video, “How to Use Four Steps to Allocate Overhead Cost Under
Activity Based Costing” will assist you in writing this discussion forum.
7. Watching the video, “Activity-Based Costing (w/full length example)” will assist you in
writing this discussion forum.
Notes:
1. Please refer to the discussion forum rubric on the start here tab for this assignment.
2. Your initial post should include at least 200 words of substantive content, and
each reply at least 100 words of substantive content to earn full points.
3. Please make sure to include outside sources to support your discussion, and avoid
grammatical errors.
Write a 2,500-word paper, use the materials covered in Weeks 2 – 4 to compare and
contrast the fundamental principles, applications, and advantages of job order costing,
process costing, and activity-based costing. Investigate how these costing methods cater to
different industries and organizational structures. Assess the strengths and weaknesses of
each system in providing accurate cost information for decision -making. Include real-world
examples to illustrate the practical implications of choosing one costing method over
another.
Essential Activities:
1. Reading “Principles of Managerial Accounting: Chapter 4” will assist you with writing
this paper.
2. Reading the article, “Activity-Based Costing” will assist you in writing this paper.
3. Reading the article, “The Disadvantages and Advantages of Activity Based Costing”
will assist you in writing this paper.
4. Reading the article, “Computation of Unit Cost Under Activity-Based Costing” will
assist you in writing this paper.
5. Watching the video, “Activity-Based Costing – Explained” will assist you in writing this
paper.
6. Watching the video, “How to Use Four Steps to Allocate Overhead Cost Under
Activity Based Costing” will assist you in writing this paper.
7. Watching the video, “Activity-Based Costing (w/full length example)” will assist you in
writing this paper.
Notes:
1. This paper must be formatted in APA Style 7th edition.
2. This paper must include a minimum of 2,500 words, not including the title and
reference page.
Yu
To understand the costs more effectively, it is important to understand the activity-based
costing and its application in a company, which allows management to allocate costs based
on specific activity and to manage the expense more effectively (Schmidt, 2023).
Activity-based costing is a dynamic calculation method to allocate the expenses based on
the activity performed (Schmidt, 2023). Compared to traditional cost calculation methods, it
is not product-focused and provides a better idea on how does the costs in cur in business
practices (Kenton, 2023). For example, a manufacturing company could use the activitybased costing to generate a better understanding in its cost management. The overall costs
can be allocated to the following activities (Thakur, 2019).
·
Product design: costs can be allocated to the product design phase as it is going to
be the initial phrase for each product (CEPF®, 2023). The new costs and existing costs can
be allocated directly to this activity and the cost amount can be compared to th e final cost
of the product (Mind Tools Content Team, 2024).
·
Set-up: Production process that involves machine hours, labor hours, and material
handling will incur set-up costs (Day, 2023). Therefore, the activity-based costing can
allocate the cost based on the activities to get a clear understanding on the expense
allocation (CEPF®, 2023).
·
Quality Control: For manufacturing companies, it is important to control the quality of
the product (Davenport, 2022). Therefore, activity-based costing can identify such tasks to
manage the overall costs for the management (Davenport, 2022).
Compared to traditional costing method, activity-based costing can provide more accurate
calculation to the overall costs as it visualizes each activity (Woodruff, 2019). By doing so,
the managers can understand how does the costs incur during the production and therefore
could control the cost more effectively (Woodruff, 2019). As a result, the organization can
make more informed decisions by understanding the costs more accurately.
CHH
Activity-Based Costing (ABC) costs actions rather than departments or goods. It tracks
overhead charges to their drivers to improve cost representation. ABC works and is used in
a company:
ABC concept:
·
ABC understands that conventional costing techniques sometimes distribute overhead
expenses based on arbitrary measurements like direct worker hours or machine hours,
which may not correctly represent resource consumption by diverse activities.
·
Instead, ABC assigns overhead costs to manufacturing operations depending on their
resource consumption, such as materials, labor, and machine time.
·
ABC links expenses directly to activities to better understand activity costs and
determine product or service prices.
A company application:
·
Manufacturing companies provide product design, setup, production, and quality
control.
·
Product design requires research, development, and prototyping. Design engineer
salary, prototype materials, and software licensing are incurred in this phase.
·
Setup: Setup prepares machinery and equipment for manufacturing. Machinery setup,
maintenance, and setup time may cost labor.
·
Production involves material handling, machine operation, and assembly. Raw
material, direct labor, and machine maintenance expenditures may occur.
·
Quality Control: Quality control ensures product quality. Quality inspector salary,
testing equipment, and rework are expenses.
How ABC Better Represents Costs:
·
ABC assigns overhead charges depending on resource use by each activity, better
reflecting cost drivers.
·
Traditional costing approaches may overallocate or underallocate overhead expenses
to goods or services, resulting in erroneous cost estimates and pricing.
·
ABC helps managers make better pricing, product mix, and process optimization
choices by understanding the real cost of activities and goods.
·
ABC’s precise cost breakdown by activity helps firms find and remove operational
inefficiencies, saving money and improving profitability.
In conclusion, Activity-Based Costing (ABC) allocates overhead expenses to production
activities to better reflect costs. ABC helps firms understand their cost structure and make
more efficient and profitable choices by detecting and evaluating production processes
such product design, setup, and quality