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Posted By Admin @ Feb 28, 2022

Tittle: Report on Organizations need to understand why some management accounting techniques may be more widely used than others,


Analysis of Organizations need to understand why some management accounting techniques may be more widely used than others,

In companies, costing systems are used as information systems to translate the cost allocation of various departments and processes executed in the manufacturing plants. According to the research studies, companies require various methods to get information about units produced and labour hours. Two commonly used costing methods are activity based costing (ABC) and traditional costing systems (TCS). Traditional costing is about assigning costs to the products following unit-level drivers.

While on the other hand, in the Activity based costing (ABC) managers identify executed activities in the organization and then assign a cost to all activities based on the actual consumption rate. The major difference between both is about cost drivers. Activity based costing system has more costing drivers as compared to the traditional costing system. In actual, it pays special emphasis on the calculation of the indirect cost of processing and production. In the activity-based costing, manufacturing overhead and indirect costs including indirect material, indirect labour, and machine maintenance expenses are the calculated based on consumption level in each activity. It has been seen that costing techniques such as ABC costing is more expensive than traditional costing. Therefore, usually, large corporations prefer ABC costing. (Rasiah, 2011)

Source: https://www.mrdashboard.com/images/activity-based-costing-example.gif

In the research study of Hall and McPeak (2011), researchers have discussed that small and medium enterprises in Ireland show an increment in the cost of information technology factors when using ABC costing. This is one of the main factors why ABC costing is not adopted. However, increasing developments in technology could be adopted by the firms, which could increase the productivity of the business. The reason why many firms have not adopted ABC costing is its huge cost. ABC costing is more complex than traditional costing which makes ABC costing not only time-consuming but also costly as well. That is why medium enterprises prefer traditional costing more than ABC. Further results and findings demonstrate that ABC costing is not adopted by companies due to technology costs. These costs cannot be handled by small companies. (Hall & McPeak, 2011)

The researchers Quinn, Elafi & Mulgrew (2017) in the study have discussed the origin of the ABC method deals with the economic shocks which could be connected to the technological factors of the businesses. Surveys also show that management accounting techniques deeply embedded in the business are less likely to adopt different techniques. Economic conditions could increase the cost for a business as they have implemented ABC costing. This is because ABC costing relies on economic factors. When there is a lower cost of information technology, there are chances to increase the cost of ABC costing and therefore adopt this technique. The research has limited scope because it has focused only on the Irish firms. It does not discuss other countries where different firms have found ABC cost-effective for the manufacturing firms. (Quinn, et al., 2017). There is a discussion about the ABC method, which is widely adopted by the organizations of the UK, and there is most likely declining in the numbers of the firms who are changing their method of costing. It does not mean that the ABC method is not good to implement in the manufacturing business.