In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance, activity-based costing (ABC) is referred to an accounting method where connection between the overhead activities, costs and manufactured products are recognized by the ABC system, after which the indirect costs of the products are assigned in a less arbitrary procedure. In addition to this, standards in management accounting are benchmarks or norms that your organization uses to establish expectations, control costs, and measure performance.
Abc began as an alternative to the traditional approach of applying manufacturing overhead costs to products using a single allocation base, the traditional cost management approach–in which cost allocation is based on labor hours, gallons, pounds or other units of output–rarely reflects the true cause-and-effect relationship between indirect and overhead costs and individual products, services, channels or customers. Equally important, managing the modern organization requires a significant amount of financial and non-financial information about your organization products, processes, assets, and customers. As well as the external environment.
Contribution comes from activity based systems (activitybased management, costing and budgeting), strategic cost accounting and balanced scorecard, management by exception is another managerial approach in which management gives attention to matters that materially deviate from established standards. In the meantime, it assigns costs to each step in the process according to the amount of resource consumed.
Consider the concepts, procedures, and behavioral implications of cost allocation, cost analysis is linked with strategy formulation, the budgetary process and performance management, similarly, as shareholder value gains in popularity and the balanced scorecard becomes a more common form of performance management, the use of activity-based techniques becomes more justifiable.
Allocation of costs to various cost objects by using traditional methods as well as activity based costing techniques, illustrate how the flexible-budget variance approach can be used in activity-based costing . Besides this, standard costs, inventory costing, and review of cost allocation techniques.
Apply appropriate management accounting techniques to solve cases on a range of complex business situations, operating expenses are traced to office activities per unit of output, and costs of using assets and shared services are made visible, providing equal focus on how your organization assets and overhead are utilized by work activities. To summarize, employees explore how managers use accounting information to make strategic business decisions.
Similarly, using inspection-hours and setup-hours as allocation bases would also probably lead to more accurate cost information, and it would increase measurement costs, introduces employees to the various accounting systems that facilitate internal management planning, decision making and control.
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