Abc Accounting

Abc Accounting

Discussion BBC system is based on the fact that for each there is a sufficiently precise ND resides in it, the cost factor, changes in rates Of which affect the Cost Of the function. Thus, the system applies the BBC monitors and cause-and-effect relationship between the cost drivers (database distribution) and the costs, and not conditional connections, as is customary in the traditional calculation (cosmological. Com, n. D).

Under the traditional technology of distribution of indirect costs, are made apportionments of costs of service centers to production centers in hospitality industry, but the cumulative costs in the production centers are assigned to products or processes usually based on aching hours, man hours or units produced, but these rules do not accurately reflect the resources consumed by different products or processes (Breadth, 2007, n. D).

The methodology of Activity Based Costing is based on the fact that a company to prod cue products or services need to perform activities which consume resources, so activities are funded first and then the cost of activities are assigned to different cost objects (products, services, customer groups and regions, processes, etc) consuming such activities, in such a way we achieve a much greater accuracy in determining the costs and the correlative profitability.

The BBC in Action Small hospitality management systems of activity-based costing (BBC) located overhead costs to specific activities causing them, thereby providing a safer product cost. Four key concepts differentiate cost-accounting systems based on activities of the traditional cost accounting, which allows systems to activity-based cost data provide more accurate product (Brimstone, 1995, n. D) 1. Accounting Activity In a system based on activities, the product cost is the sum of all costs required to manufacture and deliver the product.

The company development activities consume resources and the availability and use Of resources create sots. Accounting activities of an organization breaks into a structure of activities that provides a reasoned analysis of cause and effect of how the key objectives and associated activities create costs and result in products (Stefan, 201 0, n. D). 2. Cost Drivers A cost driver is an event that affects the cost/performance of a group of related activities. The family cost drivers include the number of machine configurations, number of engineering change notices and purchase order number.

The cost drivers reflect the demands placed on activities in the activity levels and production. By controlling the driver cost can eliminate necessary costs, which results in an improvement in product cost. 3. Direct identification Direct identification involves assign costs to products or processes that consume resources. Many overhead can be concealed effectively identify the products, thus providing a more accurate product cost. 4. NO value added costs In production processes, customers may perceive that certain activities do not add value to the product.

By identifying cost drivers, a company can pinpoint these unnecessary costs. Systems costs based on activities identified and put a cost on the activities implemented (that add value and not to add) so that management can determine the expected changes in resource requirements for each activity. In contrast, traditional cost systems accumulate costs by budget line items and functions (Reamers, 2007, n. D)). It shall be noted here that BBC system uses a number of factors as the cost base of distribution, while traditional accounting systems tend to use a maximum of two bases of cost allocation.

Therefore the rate factor costs in the BBC system are more connected to the causes Of overhead. The traditional system Of cost accounting and cost of high-volume product is equal to the cost of small-scale reduce M in the hospitality industry. The reason is that both products require for their production of an equal number of hours per unit. In hospitality industry BBC system recognizes the differences in the relative consumption of inputs and the corresponding tracks their number up to each product.

As a result, statements reflect higher production costs for Iow- volume product, as the latter consumes more is not related to the amount of production inputs. And when used as a base of distribution parameters associated only with the volume of production, the high-volume products will be distributed over a high proportion of costs. High-volume products, in this case a kind of “subsidizing’ small-scale, take on some of the “alien” costs. Company may make the wrong decision concerning the nomenclature of production, expanding production Of low-volume products due to high- volume.

Schemes costing the traditional system and the BBC system may be complex in hotel businesses. It may be noticed that the two systems are based on two-stage cost allocation. And at first, traditional accounting systems allocate overhead costs to production units, while BBC systems include overhead activities (functions), rather than division. In the BBC yester, it establishes many centers (groups) of costs, whereas in conventional systems overhead costs are usually allocated to existing units.

As a result, in the case of traditional systems, are needed (often substantial) costs of redistribution service units to ensure allocation of overhead costs for the main production unit. In the case of BBC systems are installed costs for separate groups of activities (functions) that are distributed directly to the products through rate cost factors. This avoids the redistribution cost service units, ii eliminates the need to communicate with the methods of distribution (direct, step by step, etc. ).

Development of functional systems In discussing this subject, we have so far considered a functional system as a whole. Now let us discuss it in more detail, divided into four steps, namely (Stefan, 201 0, n. D): 1) Identification of the main activities that take place in the organization; 2) The allocation of costs to cost centers for each activity; 3) Determining the cost factor for each of the main activities; 4) The distribution of costs related to activities by products based on the demand for these types of activities. Steps; Identify activities

Activities consist of a collection of individual works or tasks, and can therefore be described as actions associated with these tasks. For example, the purchase of materials may be identified as a separate activity, which consists of many different tasks, such as getting the ordered material, identification of suppliers, preparing purchase orders, send purchase orders, etc. In some Of the first functional systems on activities allocated hundreds of individual cost centers, but recent studies have shown that there is now a trend limited to 20-30 such centers.

The final choice of activities should be taken after due concussion, and most likely he was influenced by factors such as the overall cost of the center (they must be significant enough to justify the allocation of a single center) and the ability to provide a separate factor sufficiently accurate cost accounting. If that is not possible, it is necessary to carry out further decomposition activity. Step 2; Distribution costs to cost centers. Once the activities are identified, for each type of expenditure should be allocated the resources that have been consumed during the period.

This must be done in order to determine how much the organization spends on ACH type. Many of the resources can be directly attributed to a specific center, but part of the costs (such as labor, heating and lighting) can be indirect and spend by several centers. These costs should be allocated to activities on the basis of the causal factors of costs or interviews, providing a reasonable assessment of the costs of resources for certain activities.

Resort to the conditional distribution should not be, because the more the cost of this phase will be assigned to cost centers so that due to the conditional distribution, the information about the cost of production, which is issued national system will be more arbitrary and less reliable. Causal factors of costs used in this step for the distribution of shared resources for certain activities, are called factors resource costs (Stefan, 201 0, n. D). Step 3; Choosing the appropriate cost factor for calculating the costs of activities on the target cost is essential.

In order to charge the expenses incurred by each center costs by product for each of the center should be selected corresponding factor costs. Cost factors, which are used in this stage are called functional factors of cost. With this choice should be aware of several conditions. First, this factor should provide a clear explanation of the costs incurred by each center costs. Second, it must allow easy measurement, ii data should be easily fetched and easily identified types of products.

It follows that the cost of measurement should also be taken into account. Factors costs related to activities that functional, are of three types: ; Operating ; Time ; Intense Operational factors – such as the number of purchase orders processed, the number of orders being processed consumers, the number of control and the number of inspections performed installation equipment account for much of he resource to be allocated on the analyzed activity.

Operational factors – the most expensive type of factor costs, but they are likely the least accurate, because based on the fact that every time you want the same amount of resources. If you change the number of resources consumed by individual target costs are large and E, operational factors do not provide sufficient accuracy resources dedicated to the accounts activity. If this condition is significant, it should apply the time factor.

Temporary factors reflect the length of time required to perform an activity. For example, if a product squires a short duration for setting up equipment, and for another this time is more, the use of duration as a factor in setting up equipment costs will more accurately measure the consumption of the resource in question, than operational factors (egg, the number of settings of the equipment), which comes from the fact that both products are consumed the same number of resources related to the studied activity.

However, if you come only from the settings, then this approach will lead to a product that requires a long time setting up equipment, will be undervalued, while a product with a short setup mime – overrated. This problem can be overcome by using cost as a factor in the duration of setting up equipment, but it will increase the cost of the measurement. Intensive factors assess the resources directly used each time you run the analyzed activity. If the time factor based on the average hourly rate, the intensity of the factors used in direct time costs required for a particular product in a particular situation.

For example, if an activity requires unskilled and skilled workers, the time factor may come from the average rate of pay for their work, which will be added to the products, while the intensive factor will take into account the actual or estimated time for each type of worker, and therefore costs, charged on the products will be more accurate. In most cases, the original source data of this kind, if we talk about the costs of previous activities or potential factors of cost are not available.

To clarify the potential factors of costs required to conduct interviews with workers employed in selected activities. The interviews are needed to identify which resources are consumed in the course of a particular activity and what the cost is. The final choice of a factor cost is likely to be made on the basis of management judgment after taking into account all of the features listed above. Step 4; Distribution costs associated with activities on products. The last step is to distribute the value of the factor costs for certain types of products.

From this it follows that the cost factor should be measured in such a way that it can be to charge for certain types of products. Therefore, if the cost factor selected hours setting up equipment, then there should be a mechanism to measure the time consumed by each product during commissioning the equipment on which it is issued. Conversely, if the umber of such factor is chosen installation, measure the individual products do not need to carry out, because Of all the products, which will be charged the cost of setting up the equipment, the rate of the charge is the same.

The hierarchy of activities Early functional systems been severely criticized, especially because of their theoretical basis. The responses to these criticisms are theoretical development of these systems, which appeared in the ass’s. The first took up the theoretical work in this area was by Cooper in 1990, who classified the production activities (functions) in a hierarchical order: 1) Activities at the nit level of production; 2) Activities at the level of the production batch; 3) Activities at the level of software product release; 4) Activities at the level of the operation of the industrial structure.

Activities at the level Of a unit Of production are carried out every time a unit is produced product or service. Expenses in this category include the cost of labor key employees, the basic production materials, energy and other costs, which are carried out in proportion to the time machine processing (egg, maintenance). Activities at the unit level products consume resources in reapportion to the number of units of output or sales volume. For example, if the company will release more units, it uses more than 10% of the labor key employees, hours of operation of equipment and energy.

Typical cost factors for this level are at an hour of labor production workers, hours of work equipment and the number of the treated material. These cost factors are also used in traditional costing systems. Therefore, traditional systems are also well suited for allocation of costs to the activities at the production unit on the target cost (Deigned, 2011, n. D). Activities at the level of party reduces such as the installation of equipment or purchase order processing materials are made every time a production batch.

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