Question

Consider where you currently work, where you have previously worked, or a company that you would like to work at. What are the main considerations of implementing an ABC system? Give examples of activities that would be appropriate for the company, and explain why you selected those activities.

Please answer this question in 200-300 words. Thank you.

Answer 1

The following are the main considerations in the implementation of ABC costing method in an organisation:

· The intention and willingness of the top management to implement the ABC costing. The tope management should have a clear strategy and purpose for implementation of ABC costing

· A Feasibility study should be conducted to study all the activities of the firm. It should cover all kind of activities taking place in the organisation

· Co-operation and co-ordination of all the departments is necessary in implementation of ABC costing

· Cost benefit analysis study is needed to ensure the benefits from implementation of ABC costing is higher than the cost involved in implementation

· The need for ABC costing in the organisation also is one of the considerations. The need can product costing or product pricing, profitability management operational or strategic decision making aspects like continue or discontinue product lines, etc

Examples of activities appropriate to the firm

· Material handling

· Machine set up

· Batch set up

· Inspection of finished goods

· Quality checks

· Purchasing

· Stores handling

· Warehousing

The above activities are appropriate to the organisation since it is engaged in manufacture and distribution of finished goods. The manufactures and distribution of finished goods involves purchase of raw materials, receipt and storage of materials, issues to production, conversion process and quality checking and final storage.