Finance and Accounting Dissertation Essay Example | Topics and Well Written Essays - 1500 words

Finance and Accounting Dissertation - Essay ExampleActivity Based Costing (ABC) is a managerial accounting system which determines the cost of activities without distortion and provides management with relevant and timely information. It does not instance just a new set of overhead allocation rules or techniques to value inventory. ABC represents a way to look at operating costs and provides methods to dissect the underlying activities, which ca implement costs to populate (Dunn 1891). The problem here, which is to be solved, is Does the activity based costing play a vital break out in financial performance. For this purpose we have to know about the relevance of activity based costing. here an example is given to know the difference about the activity based costing and conventional costing. E.g. impress that Product A and Product B are manufactured by the same company. Product A is a low glitz item and new one, it requires particular activities such as additional testing, pec uliar(a) engine room, and some instrument setups because it is ordered in less quantities. Product B is a big volume ingathering produced constantly and needs little concentration and does not require the particular transactions. If this business makes use of conventional costing, they assign or assign every expense to goods on the basis of the amount of machine hours. This will effect in small expenses rate due to Product A, since it do not learn numerous machine hours. Though, it performs order loads of testing, engineering and setup actions. The Product B will be owed a huge quantity of expenses owing to every device hours, except it insist small expenses action and no special attention (Emerging Issues in Cost and Management Accounting n.d). The result will prepare a serious miscalculation of both products real price of manufacturing expenses. This costing will raise to a higher place this situation by transferring expenses on above the one action that is., the machine h ours will not save be the activity, all other activities are taken into consideration while costing the product. Background of the need Activity based costing will recognize the cost of additional testing, machine setups, special engineering and other activities that cause the costs. These activities consumed the resources of the company. So in activity based costing, they will calculate the cost of resources utilize in these activities and the product cost will be fixed accordingly. The cost of activity is assigned entirely to the product which demands the activities, which means the cost of special engineering, additional testing will not assign to the product B. Aims and Objectives Here, the objective of the study is to understand does the activity base costing play a vital part in financial performance. Obviously, there are reasons to say that activity based costing plays a vital part in financial performance of organizations. But before stating it, we need to critically st udy the financial performances reports and compare the financial performance of activity based costing and conventional costing methods. From the above examples itself, we can understand how the activity based costing is an advantage for the organization. The real cause of costs is acknowledge and it is added to the product cost. This method eliminates the chances of miscalculations and hence gives additional profit to the organization. But activity based costing to a fault have some problems like some costs are complex to allocate during this