The Best Coice of Costing Plan

In: Business and Management

Submitted By admorgan24
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The Best Choice of Costing Plan

Trident University

Businesses must choose the most appropriate costing plan for their particular business by taking into account various aspects that are potentially impacted. For the cast of the Farm Financial Standards Council, certain allocations are considered in each department of the farming process in order to better manage financial aspects of the farm. Although some of these allocations may prove logical and assist in determining costing, some of the decisions may not be as beneficial in this case. This research will address those benefits as well as the potential drawbacks of such mentioned allocations, and if traditional cost accounting or activity based costing (ABC) would prove more relevant. ABC is being used in today’s businesses more often as it is an important aspect of manufacturing organizations, based on a “methodology that measures the cost and performance of activities, resources and cost objects” (Akyol, Tuncel, and Bayhan, 2005). So many factors go into the calculations of activity based costing, making it a more detailed form of financial management. The ABC system retrieves a total cost of a product, which is equal to the cost of materials, and also all of the activities combined to produce that product. Simply meaning, the ABC method is based around the organization utilizing all resources and linking the cost of those activities to the “outputs, such as products, customers, and services” (Akyol, Tuncel, and Bayhan, 2005). An accounting article by Swathen (2010) defines four basic steps involved in the activity based costing process:
• Identify and classify all of the activities in the value chain related to the production of the product.
• Estimate a total cost for each of the activities identified.
• Compute a cost-driver rate for each activity based on a cost…...

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