Method of Costing in Modern Business

In the present scenario of changing business environment, the organizations have put an augmented focus to increase the profit. In any instance of increasing revenue from sales, there is a considerable increase in the variable cost which are seen to be related to the sale. Therefore, it is necessary for a business in choosing the appropriate method of costing which is able to effectively record and interpret the costs associated to a business. The main treatment of the overhead cost is related to the management and allocation of the appropriate costs to the business. Modern business is depicted to use the ABC costing for identifying and allocating the costs with the business. The implementation of traditional costing was seen to be inefficient for the changes in the operations of the businesses and overcoming the deficiencies associated to the traditional costing. This is further seen to be conducive for the overall decision making (Kaplan et al. 2014). 

It is also discerned that the use of ABC enables a business for operating in an effective manner and apportioning of the costs associated to a business which are required for the purpose of production activities carried out in a business. This type of the costing method is also seen to be essential in terms of defining the various types of the engagements with the manufactures in case of maintaining multiple product line. In addition to this, this costing technique allows the business to help them identify cost for the respective activities and allocation of the same (Lew, Pacana and Kulpa 2017). The process of carrying out the activity-based costing has been depicted with the use of various types of the techniques for appropriate allocation of costs. The process of this technique is further seen to be unique in nature in compared to the traditional costing which is inferred with the machine hour for the allocation of the cost to the business. In case the costing method as per ABC is selected then the respective units of the costs need to be considered as per pools of the different activities (Dale and Plunkett 2017).

The process of ABC is often identified with the effective allocation of the costs as per the use of the different types of method which are seen to be associated to the process of deciding making. The techniques under the ABC is further seen with the consideration of the various types of the role in setting of the selling price which are required for manufacturing process in a business (Krupp and McCartney 2015). The process of ABC is seen to be implemented when the business classifies the costs which are incurred in the short terms and long term. The general allocation of the short-term costs is seen to be depicted as per the volume related cost drivers. The main examples for this is seen to be associated to the direct material cost, machine hours and labor hours. In a situation of long-term variable cost the first imitative is considered with the analysis of the nature of the costs and the activities which are associated to such costs (Plank 2018).

Activity-Based Costing in Business

The important set of the objectives for the ABC are considered as follows:

• This is considered as the new costing system which is aimed to make rectifications in the inaccuracies existing in the traditional costing method to record the transactions in a business.
• The costing method is depicted to improve the overall allocation of the cost to the business which is made possible with linking the costs incurred with the business activities which are repetitive in nature.
• This method of costing is also useful to the companies in taking the effective decisions associated to the cost models followed in the business and deicing on the selling price of the product.
• This type of the costing system is also depicted to bring more effectiveness in the disclosures of the costing process of the business and make the cost structure of the business more effective (Christopher 2016)

The effective analysis of the procedure for ABC is understood as per the research papers written by the different authors. The explanations provided in the journal articles further relate to the usefulness of the use of ABC in a particular business. The assessment as per the journal article is shown as follows:

Article 1: “Activity Based Costing in Services Industry: A Conceptual Framework for Entrepreneurs”

Article 2: “Activity based costing (ABC) in the public sector: Benefits and challenges”

The aforementioned journals are related to the differentiating nature of the operations of the organizations. The discourse of the journal has included several excerpts of information which has highlighted the important aspects of ABC.

The review of this journal is focused with the impact of the ABC system in service industry. As the business is engaged in manufacturing process it has attained a sufficient level of growth in the recent years. The statement of the authors has also identified on the changing nature of the business as a result of increase in the overall scale of operations which is result of tremendous increase in the costs related to the business. Ion most of the cases the businesses suffer from number of problems related to the profit margins and cost associated to the business. Hence, it is customary for a business to adopt an appropriate method for managing the cost management system. This is evaluated to portray the effectiveness and accuracies in the costs which are incurred as per the conduction of the business in a given financial year (Schaltegger and Burritt 2017).

The extent of the research has been able to consider the costing techniques which are used in the business environment and the implementation of the same as per the following the relevant procedures for the decision making. The relevant procedures suggested in the journal paper relates to the key steps in conducting the Activity based costing for a business. This is needed to identify the cost components and the key drivers of the cost for the business. The research has also focused on the differences which are existing in the traditional method of costing and ABC. The important nature of the deficiencies in the ABC is seen to be based on the various types of the processes which are needed with the conduction of the relevant business activities as per detection of the non-financial factors which may hamper the performance of a business (Agarwal and Jain 2014). This is mainly due to the concerns associated to including inaccurate cost information. The specific discussion of the journal has been further helpful in identifying the advantages of the application of the ABC associated to the service sector and bringing about better presentation of the costs for the business. These are evident with the improved disclosures pertaining to the presentation of the infarction related to reduction in the cost and overall cost structure maintained in a particular business. This is seen to aid in the overall decision-making process in a business (Kumar and Reinartz 2018).

Advantages and Disadvantages of ABC

The aforementioned discussion has shown the superiority of the ABC in compared to the traditional system. The advantages pertaining to the ABC needs to be identified as per segregating the manufacturing costs into appropriate cost pools. The process of the research has been also able to reveal about the reach questions which are listed as follows:

1. What is role of Activity based costing in aiding the process of decision making?
2. The details of the analysis which is exiting in the business with the use of traditional method of costing for a business and using the ABC.
3. In a service industry what are relevant form of the cost drivers which are seen to be associated to the cost drivers?

The evaluation of the journal is considered in the research which has clearly implied on the different types of the comparison off the traditional costing and ABC when implemented in certain business. The relevant discussions of the journals have also enumerated on the advantages of the method of implementing the ABC. This journal has presented the implementation of the ABC system in the public-sector entities (Subramaniam and Watson 2016).

The research paper has further stated on the problem statements pertaining to the researchers and academicians in providing the opinion of ABC. The main opinion given by the researchers are based on usefulness of the ABC only in terms of large business and business having the operations in the production of the multiple product lines. Despite of this, the application of ABC is seen to be much more extensive than initially proposed (Kaltenegger et al. 2017). This assessment is based on considering the public-sector enterprises which are related to providing the relevant services to the general public and services which are provided with the overhead intensive and opinions considered by the researchers for selecting the best options. These are seen with significant disclosures made in the research depicted with accountability and transparency of an enterprise. The research further aims to analyze the implementation of ABC to bring about the accountability and transparency in the accountability of an enterprise. The study is conducted as per the various operations in South Africa which are based on the grass root level for the services delivered in South Africa. The main aim of the research is associated to identify the ABC with the effective implementation for the same among the public-sector entities in SA (Bennett and James 2017).

The effectiveness of the various disclosures of the journal paper has been further discussed the implementation of traditional costing in the particular business. This is applied as per the costing system which is developed as per placing the placing the particular job or process in particular system of costing. Moreover, the allocation of costs for a business needs to be depicted as per direct expenses incurred which are typically indirect in nature. The system of cost apportionment is further identified as per the consideration volume-based cost driver which may include machine hours. The drawbacks of this systems need to be considered as per the traditional system of costing which are stated in the journal paper (Dong, Liu and Lin 2014).

Implementation of ABC in Public-Sector Entities

Figure: Comparison between ABC and Traditional Costing

(Source: Kaplan et al. 2014)

The image represented above has been considered with the comparative analysis of the systems considered with the ABC and TC techniques. Based on the above excerpt of information the research paper has analyzed the following set of questions:

1. How the ABC can be implemented in the public-sector entities along with the respective identification of the costs?
2. Is it possible to apply the ABC to other areas of business which are not consisting multiple sections of production or large in size?
3. What are various types of the additional benefits which are needed to be derived as as per the application of ABC in public sector entities?

The similarities and dissimilarities among the evaluation of the two articles are inferred below as follows:

• The consideration of both the articles are seen with the application of ABC in different sectors. Moreover, the application ABC in a unique sector is identified with the improvements concerned with the reporting framework of the business. The important extent of the application of ABC in an organization needs to be considered as per the important nature of the depictions which may bring certain improvements in terms effective assessment and estimation of cost drivers (Cooper 2017).
• The articles of the business are further seen to be based on the various extent of the disclosure of the information which are considered in the traditional costing and removal of the cost deficiencies existing in the ABC process. The comparison among both the articles has been further evident with the comparison which are made with the modern activities and the traditional system of costing to contribute to the overall improvement in the business (Weygandt, Kimmel and Kieso 2015).
• The important aspect of the benefiting factor for the implementation of ABC has been listed in both the articles. The articles emphasize creating a strong impact as per the review of the process in terms of the benefits which are seen to be asked on the several types of the depictions which are based on the implementation of ABC (Boukherroub, Ruiz, Guinet and Fondrevelle 2015).

• The discussions of both the paper has considered the difference in the structures of the business and even the differentiating treatment of the cost in different sectors of operations. As per the depictions made in the first article it has been seen that there has been significant nature of the discussions which are seen to be associated with the service sector. In terms of the discussions of the second article the important significance has been put on the operations of public sector entities (Mossialos et al. 2016).
• The interpretation of the articles for both the business which are associated with the services rendered across different countries are also seen to be varying in nature.

The analysis of the research is considered with the significant disclosure of the effectiveness of the ABC in a business. The positive aspects are shown in terms of the journals which shows that management professionals working in Australia are able to bring the necessary improvement as per the structure of the company. Some of the specific outcomes pertaining to the    study is listed as follows:

• Rationale for excellence of ABC over TC: In terms of the traditional costing system maintained in Australia, ABC will be able to bring significant improvement in terms of the changes in the reporting framework. This is especially seen with the recommendations as per the business operations which maintained as per large scale of operations or the processes which are associated to the distribution and production of multiple product lines (Carlsson et al. 2016). In these cases, the anticipation of the ABC system is able to bring about better reporting information which are depicted with the anticipations as per the ABC and better reporting of the costs which are incurred for the business. The information revealed in the journal has identified three major weakness in the traditional costing system which are seen to be effectively addressed with the use of ABC system. The overall analysis is further identified with the issues concerned with the traditional costing and replacing of the same on an immediate basis (Parker and Fleischman 2017).
• Process of decision making: The identification of the different components of the ABC was identified with the anticipation of the accuracy and efficiency pertaining to the cost structure in the business. Therefore, the significant nature of the advantages of conducting business in Australia needs to be determined as per the application of ABC system. This nature of the costing system will have pivotal advantages pertaining to the improvement in the overall process of decisions making in a business (Christ and Burritt 2015). This needs to be also considered with the accurate information pertaining to cost and aiding the decision-making process for making the overall business assessment easier. Moreover, this type of the costing has been signified with the importance of adjusting the price of the goods and services as offered by the business. The accuracy in the cost evaluations has been also predicted in terms of ways to reduce the overall costs associated with the services and products which a business offers (Ellul et al. 2015).
• Allocation and identification of costs: The newly costing system has been conducive for the identifying the importance of the various types of the elements of the cost and allocation of the same. Moreover, the apportionment of the is depicted with the traditional costing system followed in business (Marota et al. 2017). The adoption of the ABC is also possible in the service sector based on the analysis done by the journals as shown pin the previous sections. The revised technique of ABC will allow the business in allocation of the various cost components which will be conducive in depicting the reliability of the financing the items. Henceforth, the business corporations in Australia needs to adopt the such a system of costing integrated in their annual report (Wan et al. 2015).

The relevant discussions of the shows about the optimistic outcomes derived from the use of the two journals. This is will be helpful for the management in improving the reporting framework which is related to the cost of the business.

Conclusion

The aforementioned discussions in the study has been beneficial in suggesting the different types of the techniques which are related to the implementation of ABC. This is further important for recording important cost elements pertaining to the business. The various aspects of the report also suggest assessment of ABC associated to its application and success. The important elements discussed in the report has been related to the outcomes across different industries. Moreover, the report has also suggested about the comparative analysis pertaining to the use of two articles. The usefulness of the study has been identified with the future scope and positive outcomes with the availability of the research. The systematic discussions associated to the report needs to be identified as per the two articles which are taken into consideration for this discussion. It can be further concluded that the main results drawn from this assessment is concerned with the similar suggestions for the both types of the business which are operating in Australia. The main disclosures pertaining to the assessment is considered with the improvement which are suggested in the reporting structure. The main discussions of the assessment have been also based on the depiction of the report which have recognized the impact of the ABC system in both manufacturing services and Public entities. The incorporation of the ABC process is mainly considered with the advantages pertaining to segregating the specific costs into appropriate cost pools and determining the cost drivers to compute the total cost which is to be allocated to the overheads.

Comparison between ABC and Traditional Costing

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