Discussion: Activity-Based Costing (ABC) and Master Budgeting

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Need Response -1

APA REFERENCE:

Cidav, Z., Mandell, D., Pyne, J., Beidas, R., Curran, G., & Marcus, S. (2020). A pragmatic method for costing implementation strategies using time-driven activity-based costing. Implementation Science, 15(1). doi:10.1186/s13012-020-00993-1

Implementing different strategies by making use of resources will help in adapting to practices that are evidence based. This case study helps in determining the budget-based constraints of the decision-makers which have critical implementation costs. Many products and services are produced by organizations. It is difficult to price the products/services. Different costs and factors are considered while pricing a product/service. Activity-based costing method help in determining different organizational activities and pricing the products/services based on the rate of consumption. This method of costing will first covert the indirect to direct cost to determine the actual costs of the products/services. Consumption rate help in determining the actual costs of the products/services. This also helps in determining the relationship between overhead, indirect costs, direct costs, and many more. The traditional costing method does not determine the relationship between overhead, direct and indirect costs.

APA REFERENCE:

Fu, G., Liu, J., Yang, J., Liu, X., Yao, D., & Ni, J. (2020). Eco-Cost Analysis of Split Air-Conditioner Using Activity-Based Costing Method. IEEE Access, 8, 54952-54962. doi:10.1109/access.2020.2976853

Split air conditioners are used to control the building temperatures. Air pollution can be reduced by making use of split air conditioners (SAC). It costs a lot to the organizations to produce split air conditioners. The cost of production of SAC can be reduced by using an activity-based costing method. The cost of the production of SAC can be driven based on the consumption rate. This article aims at reducing the production costs of SAC. The activity-based costing method will distribute the price of the product based on the rate of consumption. This case aims at determining the eco costs of SAC.

Master Budgeting

APA REFERENCE:

Srithongrung, A. (2017). Master Budgeting and Management Practices: Smoothing Out Rough Spots in Government Outlays. Public Budgeting & Finance, 38(1), 47–71. doi: 10.1111/pbaf.12167

Master budgeting process and management practices of the organization will help in controlling the long term financial activities of the organization. There are many effects of planning activities in long term for a business which is determined using this case study. The results of the planning activities are considered to determine the future planning activities of the organization. The business planning activities of the firm will decide the success/failure of the firm. The importance of the processes is determined in the firm by considering the master budgeting method.

APA REFERENCE:

Grob, H. L. (1993). Selected Topics of Master Budgeting. Master Budgeting with Financial Plans, 142–187. doi: 10.1007/978-3-663-09476-0_4

This case study focuses mainly on the financial plans and the activities of master budgeting of the organization. Master budgeting activities of the organization are taken care of by the management of the organization. This team of the organization will concentrate more on different organizational aspects and functions. Different financial tools are used to determine the master budget of the organization. Planning the financial activities of the organization will make it easier to achieve the financial goals of the organization. Different activities are included in the financial planning of the organization. The master budgeting process is used to control and improve the business operations of the firm. An organizational mission is considered to plan the financial activities of the organization.

c. Master budgeting and value-based analysis of the organization are used to determine the performance of the firm. Important business decisions of the organization are taken care of by the managers of the firm. Determining organizational financial information is very important for the managers. Financial information collected will help in determining the organizational financial structure. To plan the important business activities it is necessary to collect and manage organizational information.

Need response 2

Activity-based costing or ABC is a costing technique that recognizes actions or events in the business organization and allocates the cost of every activity to all goods and services rendering to the actual consumption through each. Activity-based costing offers a correct method of goods or service costing, foremost to high accurate pricing results. It rises accepting of cost drivers and overheads and creates high, and non-value is totaling activities visible, permitting managers to lessen them. ABC for setting the price in the competitive marketplace and also labels the advantages and benefits, that ABC offers over the volume based costing in high and low informative settings through filtering out their accurate data for effective decision process (Cardinaels, Roodhooft, & Warlop, 2004).

Benefits of using traditional costing for effective measurement of Cost of Quality in every size of the organization to define the outcomes of the evaluation, importance, and cons. As defined, the main reason for the shortage of traditional costing in the calculation of COQ is due to the respect of prearranged estimated allocation rate against the requirement for a highly sophisticated technique for assigning overheads over the goods or services. However, ABC fits with the classification models of COQ that are highly ABC. The relationship among success or use of practices of activity-based management or ABM and organizational life cycle stages or OLC. It states that the revival and maturity stage organization units use every level of ABM to a greater extent than those in the growth, birth, and decline stage.

ABC is not the activity analysis, classified levels of ABM or activity-based management, and activity cost analysis (Kallunki & Silvola, 2008).

Activity analysis classifies the single degree of ABM that describes the procedures and activities to transfer input into an output. ACA goes a stage further to classify the costs and the cost drivers of every activity and the uppermost level of ABC, ABM, bits activity costs to goods and services to allow more precise measurement of goods and service. It defines that, the level of ABM achievement does not differ through OLC stages, but achievements are reliant upon industry units using every ABM exercise to the utmost extent, which may provide a vision into the suitability of using ABM practices at diverse OLC phases (Cardinaels, Roodhooft, & Warlop, 2004).

Yes, the articles support all the materials of the textbook as they provide information about ABC. ABC is a costing technique that is designed to deliver cost information to the managers for effective decision making in the organization. The articles which I read also describes the ABC and its uses in an effective way. Activity-based costing offers a correct method of goods or service costing, foremost to high accurate pricing results. It rises accepting of cost drivers and overheads and creates high, and non-value is totaling activities visible, permitting managers to lessen them (Oker & Adıgüzel, 2010).

I learned a lot of things from the articles and textbook as it helps me to apply accounting processes for several manufacturing industries. Calculate the costs of products and services, and track cost flows of the product. I can differentiate between plant extensive overhead rates, departmental overhead charges, and activity-based overhead charges. ABC is an accounting procedure used for assigning correctly the number of resources inspired, and overhead costs acquired to yield goods or service on the foundation of value-adding activities (Özkan & Karaibrahimoğlu, 2013).

References

Cardinaels, E., Roodhooft, F., & Warlop, L. (2004). The Value of Activity‐Based Costing in Competitive Pricing Decisions. Journal of Management Accounting Research, 16(1), 133-148.

Kallunki, J.-P., & Silvola, H. (2008). The effect of organizational life cycle stage on the use of activity-based costing. Management Accounting Research, 19, 62–79.

Oker, F., & Adıgüzel, H. (2010). Time-Driven Activity-Based Costing: An Implementation in a Manufacturing Company. Journal of Corporate Accounting & Finance, 22(1), 75-92.

Özkan, S., & Karaibrahimoğlu, Y. Z. (2013). Activity-based costing approach in the measurement of cost of quality in SMEs: a case study. Total Quality Management & Business Excellence.

Need response 3

A.Almeid & J.Cunha. (, 2017). The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, 13, 932-939.

The article reflects the (ABC) activity-based costing methodology in the manufacturing unit developed by Cooper and Kaplan. It addresses the issues and problems related to the increase in the cost structure's fixed costs, derived from the production process's automation and industrialization. ABC costing determines the cost of the resources to produce goods and services. In the ABC system, the assumption is made that input and resources utilized in the activities are required for the production. The ABC costing system provides information concerning the quantity and quality so that cost can be effectively estimated (A.Almeida & J.Cunha, 2017, pp. 932-939).

Mahal, I., & Hossain, M. A. (2015). Activity-Based Costing (ABC) – An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), 66-73.

Activity-Based Costing (ABC) is an important tool for bettering management to get an effective and accurate cost for a product, which will help sustain growth and development as growth and development are mandatory in the globalization era to stay tuned in competition. By implementing ABC, the business leads to success in every sector. In the article, the implementation of the ABC approach is discussed with six major decisions. Joon Jong No and Brian H. Kleiner have fenced the ABC systems to achieve the product cost that is correct then by reporting the multiple drivers of cost to the process's manufacturing activities. Its main objective is to lower the overall cost (Mahal & Hossain, 2015, pp. 66-73).

Isaac, L., Lawal, M., & Okoli, T. (2015). A Systematic Review of Budgeting and Budgetary Control in Government Owned Organizations. Research Journal of Finance and Accounting, 6(6), 1-11.

Budgetary control involves setting the organization's goals with process designing that serves as the organization's structure to effectively articulate the activities planned. The estimation of the planned activities in terms of finance is considered budgeting. The effective mechanism to establishing the budget to obtain the required result is budgetary control. The management has the skills and ability to increase profitability and enhance customer value based on the job. The article has analyzed how to obtain financial information annually, tax laws, and the files (Isaac, Lawal, & Okoli, 2015).

Heydari, A., Amiri, M., & Jamour, H. (2018). The Role of Internal Organizational Factors in Implementing the Budgeting System Based on Performance: An Interpretative Structural Modeling Approach (Case: Tehran Municipality). Urban Economics and Management, 6(4), 533-549.

The reformation of economic structure and modification of the distribution and budgeting method from conventional to modern budgeting system. The Performance-based Budgeting monitors the operational activities and facilitates resource allocation access with the clarification of resource distribution. The information supports the targeting of resource utilization that may lead to huge customer value. This article has researched the introduction of internal factors that affect performance-based budgeting (Heydari, Amiri, & Jamour, 2018, pp. 533-549).

Lesson Learned

The articles on ABC makes us understand how the cost and performance can be measured in cost control. Different allocation can be made through cost drivers. I have learned from the article how ABC plays a role in its contribution to compete in the market. The article discusses the era of business like the service sector, manufacturing sector, and technology business. I have learned the budgetary tools utilized to know the extent of the different factors' impact and effectiveness. The research can be applied in the target's dimension in recognizing the issues, the analyzing technique is discussed, and for the arrangement of the factors, an explanatory tool is used so that the budgetary tools are effectively implemented in the business.

Manager's Perspective

As a manager, the article is used to make a better managerial decision by implementing its ABC methodologies. The cost drivers can be easily allocated for the products. The cost and activities can be easily analyzed as management. The article is used to distinguish the problems and profits of ABC implementation in the organization. To establishing the coordination between the Activity Based Costing and managerial accounting concepts. Such as Total quality management, life cycle costing, and theory of constraints in the organization. The article will help achieve budgetary control in the stakeholders' involvement to analyze the establishment process. It helps by contributing the management efficiency and enhancing the organization's productivity to attain business.

Reference

A.Almeid & J.Cunha. (2017). The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, 13, 932-939. doi:10.1016/j.promfg.2017.09.162

Isaac, L., Lawal, M., & Okoli, T. (2015). A Systematic Review of Budgeting and Budgetary Control in Government Owned Organizations. Research Journal of Finance and Accounting, 6(6), 1-11.

Mahal, I., & Hossain, M. A. (2015). Activity-Based Costing (ABC) – An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), 66-73. Retrieved from https://www.researchgate.net/publication/309398925_Activity-Based_Costing_ABC_-_An_Effective_Tool_for_Better_Management