Question

ctivity-based Costing (ABC) of the costing systems studied in this unit from the list below, and answer the questions that follow:

1. Briefly discuss the features of Activity based costing system.
2. Identify 2 specific Australian companies that your chosen costing system is suitable for, and explain why.
3. Discuss two potential uses of the cost information for decision-making, to the managers in each of the 2 organisations selected in Q2 above.

Please choose any one of the journal article from the following Accounting and Management Accounting Journals:

Answer 1

1.Activity-based costing is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. This model assigns more indirect costs into direct costs compared to conventional costing.

Features or Characteristics of Activity Based Costing

1. The total cost is divided into two types i.e. fixed cost and variable cost which is necessary to provide quality information to design a suitable cost system in a manufacturing concern.

2. distinction between the cost behavior patterns.

3. The cost behavior patterns are volume related, diversity related, events related and time related.

4. the cost behavior pattern is dictated by cost drivers

Implementation of Activity Based Costing

1. Identify the functional areas of organization.

2. Identify the main activities of each functional areas.

3. Allocation of  common indirect costs to each functional areas

4. Preparing the statement of expenditure on activity wise.

5.Find the activities which are to be eliminated or improved for better performance of the organization.

2 specific Australian companies

Here are the some of the examples of specific Australian companies

1 GREEK HOTEL ENTERPRISES

2 Karolinska University Hospital

While healthcare companies were once able to raise prices to make up for cost increases, as of 2015, Medicare, HMOs and other managed care organizations cap provider payments, creating a greater need for accurate cost analysis.ABCis an accounting tool that allocates costs incurred through a company's practice of providing goods and services to the consumer. In health care, this often is based on services associated with patient care, which can be procedural or time-based.

GREEK HOTEL ENTERPRISES

The purpose of this paper is to provide insights of the Greek Hotel Industry practices in the field of Cost Accounting. To this end, a survey was conducted with 85 firms of the Greek hotel sector with the use of questionnaires. Results show that hotel enterprises have a high fixed cost structure . Results shows that most hotels use traditional cost accounting. Nevertheless, the adoption rate of an activity based costing (ABC) system is considered rather satisfactory considering the rates that come from surveys conducted in hotel enterprises in other countries. According to the statistical analysis, the factors that mostly affect the managerial decision of hotels in favour of an ABC system include their cost structure and the cost calculation per customers' categories.

Cost information for decision-making, to the managers in each of the 2

executives follow a rational approach collect and use ample information in a structured decision-making process passing through a number of distinct phases in time. In this process, information plays a vital role in reducing uncertainty. , the aspect of the quality of the information used by the board was stressed. we can affirm that with more relevant information available, discussions in the boardroom on issues affecting the choices and alternatives can now be better controlled and rational decision-making is thus facilitated.

It Provides guidelines on how overhead costs can be managed for using Activity Based Costing (ABC), providing gains in contractor competiveness. Illustrated with a range of case studies and examples it also presents a map that shows construction contractors how to implement ABC to calculate overhead costs accurately, identifying non or low-value added operations which can then be improved.

Accounting, Auditing and Accountability Journal

Cooper (1991) [2] further suggested that ABC approach measures the costs of objects by first
assigning resource costs to the activities performed by the organization, and then using causal cost drivers to assign activity costs to products, services, or customers that benefit from or create demand for these activities

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