Developments of the company
Activity Based Costing eliminates waste in an organization or a company . This is because it provides an avenue of knowing non-value added activities in the organization hence the company avoid spending on such activities. This has also enabled enterprises to model the impact of cost reduction and subsequently confirm the savings achieved (12manage, 2009). All organizations or companies are after wise use of the available resources for their sustainability and development; therefore, this costing system is of great significance for the growth and development of the organization.
ABC also helps in decision making in an organization since it brings forth the ideas of estimation and pricing which are geared on product costing during manufacturing process. This particular information on costs and prices is the key in the analysis of the progress of an organization or a company. It is always noted that ABC improves the profits of an organization or a company as it analyses and monitors the whole life cycle of all costs involved and the general performance.
The life of an organization is always pegged on its ability to generate profits and a system which promotes such gain is beneficial to the organization. Poor negotiation of contract always turns out to be a big loss to the company hence jeopodising the sustainability, growth and developments of the company. Furthermore, it is upon this costing system that one can identify market cost of a product and its distribution channel cost because of its total analysis of all the costs involved in a product manufacturing process up to the last point when it is available for the consumer in the market.
ABC costing monitors all the cost involved in the life–cycle of a project and it thus facilitates the process of tracking project cost accurately. In many cases some projects stall for a period of time then starts again. In such a case you will find that some costing system normally leaves out some elements of costing for instance time and hence does not give out the accurate project cost. ABC costing system therefore monitors all the costs involved and thus the result is reliable for accurate decision making regarding the project.
With the costing based on activities, the cost of serving a customer can be ascertained individually (Value Based Management. net, 2009). ABC costing system also helps in quantifying contract cost. Normally in organizations and companies whose main objective is to make profit, sustain their operations and grow, quantifying contract costs is inevitable . This is because a company or an organization which wants to know quantitatively the cost of products and services it out-sources, it will easily use the information offered by ABC costing system.
Quantifying a contract will also require that it is put in monitory terms whether it’s a product or a service offered for it to be understood easily by anyone. It is also identified that ABC costing system encourages continuous progress, growth and control of all activities. This makes it easy for an organization or a company to predict the future growth and budget for it adequately. Corporate strategies are easily linked to operational decision making by ABC costing system since it provides all the information concerning all costs at all stages.
This makes it easy to plan, budget and make choices on which areas earn most to the organization or company. Apparently, Activity Based Costing/Management system has been with us for more than one and a half decade has only been used in few organizations (Cokins, 1999). While a considerable number of financial institutions and manufacturing industries have appreciated the effectiveness of ABC/ABM system of costing and management and gone further ahead to embrace it, a sizeable fraction of the said number of organizations have not taken the advantages of the application of these system.
This is basically due to the limitation that comes along with the benefit of ABC/M system of costing and management. The slow response to its embracement is associated with its high cost of implementation. It is therefore true to say that Activity Based Costing/Management has revolutionized the costing and management systems but has not been widely embraced globally. It is a success story and innovation that is waiting to be fully exploited. It is worth noting that these systems require skilled manpower to understand them and fully exploit the benefits which come along with them.
It is only through this, that these systems will eventually take over a good percentage of the overall costing and management globally. Finally, advancements in the level of technology must provide cheaper solutions and open the windows of opportunities that come when there is a considerable reduction in their implementation cost.
12Manage, 2009, Activity Based Costing (ABC). Retrieved on 26th April 2009 from: http://www. 12manage. com/methods_abc. html Baker, J. J., 1998, Activity-based costing and activity-based management for health care. ISBN 0834211157, 9780834211155, Jones & Bartlett Publishers Ballast, D. K. , Rachlin, R. and Sweeny, A. , 1996, Accounting and financial fundamentals for nonfinancial executives, (2nd Edition). ISBN 0814479286, 9780814479285. AMACOM Div American Mgmt Assn Cokins, G. , 1999, Learning to Love ABC, Journal of Accountancy, Vol. 188, pp. 19-42 Hicks, D. T. , 2002, Activity-Based Costing: Making It Work for Small and Mid-Sized Companies