Question

Based on activity based costing article, briefly summarise how the costing system was designed and implemented in your real-life organisation?

Answer 1

COSTING SYSTEM- ACTIVITY BASED COSTING

Costing system in every organization is designed to monitor the incurred cost of a business. It is the system, which comprosies process like; set forms, controls,reporting etc. These are designed for the purpose of making proper communication with the management regarding the costs and revenue of a product/services. Such type of informations are used by the management for the purposes of :

• Maximization of profit through the effective implementation of operations.
• Optimum utilization of resources, without wasting it.
• Take decisions regarding where to cut the cost, in the case of business loss.
• Implementation of strategic plans for future developments.

Activity-based costing is the process of allocating the costs of products and services based on the resources that they used. It is a method of allocating the overhead costs by allocating them to activities. Activity based costing is mainly used in the manufacturing units. It enhances the reliability of cost datas.

IMPLEMENTATION OF COSTING SYSTEM IN THE REAL LIFE ORGANISATION

Nowadays a tight competition is face by the companies at global level. The competition insists every organization to design and implement a strong plan , which helps the company to sustain in a long run basis. Because of the tight competition across the world , the companies will be under the pressure of increasing it's productivity by cutingoff it's production costs. Thus for facing these issues ABC system is designed and implemented in the organization.

Steps included in the implementation of ABC system [ let us take the example of [ APPLE INC. ] :-

1. Define the need for allocation of costs and it's benefits.
2. Identify support and operating cost department pools
3. Selection of an allocation base.
4. Implementation of best method to allocate costs
5. Once the allocation of costs to production departments are ready,cost drivers can be selected.

Benefits Of Using ABC System In APPLE Inc.

APPLE Inc. is a multinational IT company, it's headquarters is in california. It sales it's products across the world.

• Greater costing accuracy is the main benefits for APPLE inc. from the use of ABC system in the company. The company can assign costs to those which includes activities for it's production.
• ABC system also help APPLE Inc. to it's business process. Since the costs are allocated to the product , company can easily identify the process that are performing and the process that are need to be improved.
• It also helps the company to identify the wasteful products in the production process. The ABC system helps the company ro where the overhead costs are allocated, this information helps the company to identify wasteful products and unnecessary actions.
• Since the APPLE compay is providing customized products and services the company production will be complex. so the implementation of ABC system will helps the company to handle and simplify the complexities.

Multinational companies like APPLE has complexities of process, since it includes various costs during it's day to day operations. Because of the same it has to implement a strong system which enables the company to allocate it's costs to activities. ABC system helps the company to make effective managerial decisions for various cost allocation process.