Accounting need 200 words add to last section

ACCT351-1404B-01

Cost Accounting

Quesadra Dynell Goodrum

Class Discussion Phase 2

Instructor: Jackie Russell

11/29/2014

Discuss the 2 pros and 2 cons of activity-based costing

Before we get into the pros and cons of activity based costing I will provide you a definition of activity based costing also referred to as ABC. ABC is a costing methodology which finds and targets activities within the organization and assigns a cost to the individual activity as well as the resources to the product and or service according to the consumption of each. In addition to this is also assigns overhead (in direct costs) to direct cost this is in contrast to conventional costing. ABC is often used as an approach in monitoring activities that involves tracking resources and the consumption of those said resources and the cost of those products final outputs. Resource assigned activities and then assigns them to cost objects based on consumption level estimates then later uses cost drivers to attach activity costs outputs (Chartered Institute of Management Accountants, 2008).

Pros:

· Precisely estimates costs of activities, products, and or service

· Helps in identifying waste

· Reduces costs

· Eliminates non-remunerative activities

· Allocates resources

· Eliminates inefficiency

ABC costing precisely and effectively estimates all costs of activities, products, and services. It helps in identifying potential waste and eliminates it. ABC costing helps in the reduction of costs of final outputs. Efficiently allocates resources to needed tasks. It also eliminates non-remunerative activities and inefficiencies.

Cons:

· Implementation complexity

· Time and cost consuming

· Doesn’t comply with GAAP guidelines

· Requires two cost accounting system

· Inability to divide certain overhead costs

· Is not in line with strategic objectives

The cons of ABC are that its implementation into the current work activities and be very complex as well as cost and time consuming. It would require that two separate costing systems be ran because it does not comply with GAAP guidelines. It also lacks the ability to separate certain overhead costs and often is not in line with organizational strategic objectives.

Give an example of a situation where activity-based costing could be used effectively. Explain your reason 200 words

References Chartered Institute of Management Accountants. (2008). Activity based Costing . London,UK: Chartered Institute of Management Accountants. Horngren, Datar, Foster. (2012). Cost Accounting: A Managerial Emphasis. Upper Saddle River, New Jersey: Peasrson Custom Publishing.