Question

1. Activity-Based Costing Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to the company? Explain at least two benefits. What are the disadvantages to implementing an ABC system? List and explain at least two. Would the proposed changes make ABC a universally applicable costing method in your opinion? Why or why not? Elaborate your response.
2. Non-Financial Performance Many city and county governments are discovering that you can control only what you measure. As a result, many municipal governments are introducing non-financial performance measures to help improve municipal services. Use the Google search engine to perform a search for “municipal government performance measurement.” Google will provide a list of Internet sites that outline various city efforts in using nonfinancial performance measures. Report on the types of measures used by one of the cities from the search.

Answer 1

Activity based costing.

Under traditional method overheard expenses are apportioned over machine hours in gerneral. For example if 100000 is spent for 1000 hours . The cost per hour is 100. Irrespective of the basis,over heads are apportioned on direct machine hours.

Under activity based costing, first activities are identified. Say, material requisition, orders, setup ,etc.. and costs related to all activities are polled together and apportioned over the activity. Thus, we can find the cost per activity per unit.

However, ABC is preferred only when there are different activities in the organisation. When there are no activities ABC implementation is not possible.

When machine overs are under utilised ABC method provides higher cost per unit when compared with the traditional method.

However, ABC method provides better cost per unit when compared with traditional costing method if machine hours are used throughly.

ABC is universable accepted and applicable method as it distinguishes all indirect expenses in to several activities. Thus cost per activity can be minimised by cost control.