Traditional and activity based costing
Traditional and activity based costing
The managerial concept of cost accounting has been one of the important organs in every corporation. This is from the point of view that the optimality theory in both the corporate costs and revenues ought to exists to provide such corporations with the most admissible and lucrative models of operation. With the advent of organizational cost been an important managerial concept therefore, activity based cost have seldom replaced the traditionally costing method creating a more facilitated approach that can address the needs and demands of the organizations in terms of costing.
Traditionally, cost was summed up as the sum total of either departmental or unit levels within the corporate functionality. It was basically difficult to evaluate which corporate process or activity was the most profitable and therefore was difficult to make the best product or activity choice. Products and processes that required huge costs variables where mixed up with those that were of low cost profiles (http://www.emblemsvag.com/abc.htm).
The main idea behind traditional costing method was evaluating what a corporation had spend as a whole while activity based costing came as a refuge in evaluating what had been done among the various corporate activities and processes. With the subject matter of optimal costing been an important sediment in the modern organizational theory, it came to stop and avoid the rigidities held in estimated allocation of cost parameters to corporate processes and products. Traditionally, there was no ultimate focus of why and where the costs occurred. With the importance attached to the scarcity of the productive resources, activity based costing had its emphasis on assigning operational costs depending on the subject matter of how they have been consumed in the production process (http://www.emblemsvag.com/abc.htm). It was also a significant tool in evaluating the causes of variances which was never supported by the traditional method. Since different sources of costs were important in making various managerial decisions, activity based costing was one such important tool that shaped the decision making process within organizations.
Change from traditional method to activity based costing has been an important concept in changing the ultimate costing philosophy in organizations. This is from the point of view that organizations have to be more focused on the process costing system than overhauling the overall costing component as a sum total of all the production and process costs in a corporation. Corporations have been more oriented in the governance and jurisdiction outlay in terms of the respective activities that are held within these organizations. Consequently, accounting has changed its fashion from the traditional one that lacks proper accounting orientation, inaccurate and been inflexible to models that are more concerned in strong accounting orientations, flexibility and high accuracy. Through the managerial predisposition of activity based accounting, it guarantees more information component that helps in taking actions aimed at realizing corporate performance breakthroughs (http://www.exactcost.com/Traditional_Costing_vs_Activity_Based_Methods).
The overall process jurisdiction within corporations have been given more incentives towards leveraging more actualizing costing accounting processes that best suit the cost agenda for the corporations. Indeed therefore, the principle control and assessment guidelines has seldom changed towards optimal corporate functionality that has its operational bias in optimal revenue and costing functions. We should therefore acknowledge of the changing imagery of organization costing theorem from that which does not account on why and where costs occur to that which has its basis on the exact values of cost concerns for the different products and processes.
Activity-Based Costing. Retrieved on 13th July 2009 from, http://www.emblemsvag.com/abc.htm
Traditional Costing Vs. Activity Based Costing. Retrieved on 13th July 2009 from, http://www.exactcost.com/Traditional_Costing_vs_Activity_Based_Methods