Essays on Bailes

In the traditional methods of absorbing overheads, the costs were allocated to the various products based on the production output, sales, head count or the square foot occupied by product operations. There are several disadvantages of traditional methods. First of all, it leads to under costing and over costing of the products. Due to the arbitrary allocation of overheads by sales or production output, the company is not able to see the hidden costs and profits of the different products. It also distorts profitability analysis. Furthermore, it causes the manager not to pay attention or particular detail to the ...

Costs influence the pricing decisions of any company as it aims to make a profit out of its production activities. The healthcare industry is volatile and competitive and the pricing set in the market will not be suitable for a company that does not strategically control its costs. The management of an outpatient health clinic felt the need to shift from a traditional accounting system to a modern cost accounting system known as activity based costing (ABC).

ABC in an Out-Patient Health Clinic

In traditional system of accounting, the good or service would be assigned direct and indirect costs. The fixed costs would be estimated for the different products ...

Activity- Based Costing

There are several advantages in implementing activity-based costing over the traditional accounting methods. With activity-based costing, overheads are not arbitrary assigned to the goods or services. There is an aim to trace those costs to the different products. This results in correct costing analysis. Traditional methods lead to over-costing and under-costing and the management is unable to make a strategic decision wisely on which product to increase or cease production (Asada, Bailes & Suzuki, 2000). The management is able to get clarity on which products increase the profit and which are a drain on the company resources. With accurate overhead ...

Introduction

The accountant involved in management accounting requires more information than the traditional accountant. Previously in traditional accounting costs used to be allocated to the product based on the volume output. Companies have realised that they need more detailed and analytical accounting information in order to judge their performance over time well.

Management Accounting

In job costing, the management accountant is interested in the costs of the different “jobs” that have been conducted throughout the production cycle of a good. Management accounting goes into specifics in order to provide management with information on which job is causing the production costs to be high. ...

Integration of ABM and ABC in Dow Chemicals Limited

The Dow chemical, an international chemical company, applied activity based costing in order to enable the global business to report the contribution margins according to the geographical area, specific products and customers. The management believed that the system would assist in better decision making in the use and the deployment of its resources. In the traditional accounting system, the costs were assigned to areas such as sales and purchases. However the method was inappropriate as it resulted to fluctuating cash flows since the main focus of costs was on prime costs. It did not provide the manager with accurate ...