The traditional cost systems which base indirect cost allocations on production volumes do not identify the causes (activities) and effects (costs). Existing systems often fail to highlight inter-relationships between activities in different departments or functional areas. Many existing cost accounting systems do not accumulate costs in a way that identifies opportunities to reduce costs. There is, therefore, a trend to evolve the traditional cost system methodology into an alternative costing method called activity-based costing which focuses on activities as the fundamental cost object and uses the costs of these activities as building blocks for compiling the cost of their cost objects. This evolution in cost systems makes it important to understand the transformation that is taking place in cost and management accounting. The activity-based costing mechanics and methodology must be understood in order to determine what type of information is needed by management. In activity-based costing, managers concentrate on activities and manage these activities to make wise economic decisions. Despite the fact that there is agreement about the concept of activity-based costing, there appears to be disagreement on many of the uses and applications of activity-based costing. Because of design complexities, there is doubt as to whether a fully-integrated activity-based cost management system could be designed. Should companies follow the fully integrated route as a basis for decision-making, extreme caution should be exercised before implementation because poorly designed systems could produce information no better than that derived from the traditional systems.
|Degree Type||Masters degree|