This week, you were asked to access a number of videos and websites. These are great resources to help you learn the materials this week. Consider what type of resource you find most helpful in learning new materials (videos, examples, text, etc). Then consider which topic you struggled with the most this week. Complete an online search for a new resource that will help you with that topic. For example, if you learn beset from videos and you struggled with the topic double entry accounting, then complete an online search for “double entry accounting videos”. If you learn best by examples, search for “double entry accounting examples”. Select one of the items you find in your search that you found particularly helpful in learning the topic you struggled with the most and post a summary of the resource and a link to the resource.
Cite and summarize the resource.
FOLLOW UP POSTS
As you review what your peers have posted, use your critical thinking skills to respond to their interpretations and conclusions. Seek clarification for points of interest to you.
Write at least 300 words
Post at least two replies to either peers or the instructor
Write at least 150 words per reply
This week’s reading about activity-based costing was paired with other outside readings. I thought the textbook did well in explaining the main reason why activity-based costing was not used for external financial reports, but I wanted to dive deeper into why this method was preferred over traditional costing. I googled the “advantages of using activity-based costing,” the below link was the first thing that popped up on my web search. The website went into detail on the advantages AND disadvantages of activity-based costing. As a result, this gave me more insight on how and why it is used in companies and why it is not included in financial reports. Furthermore, it helped me answer the discussion questions and better understand what the textbook was referring to when using this method. I think for the assignment assigned this week, I will likely be searching up videos on examples of how to calculate activity-based costing and traditional costing. For the final test at the end of the course, I will likely be studying the links that I have posted in past discussions including this one. I learned through the midterm, that it was beneficial to review over homework assignments and the textbook’s definitions but I forgot to look up my other outside resources. Therefore, I will likely be going back through or compile a list of the websites used and use it as a study guide method.
Advantages and Demerits of Activity-Based Costing (ABC). (2015, May 13). Retrieved from http://www.yourarticlelibrary.com/accounting/costing/advantages-and-demerits-of-activity-based-costing-abc/52617
This week I continued to further explore the similarities and differences between activity based costing and traditional costing methods. Activity-based costing (ABC) is an accounting method that identifies and assigns costs to overhead activities and then assigns those costs to products (Kenton, 2019). Typically, activity based costing methods will be utilized in the manufacturing industry because it heightens the reliability of cost data. The data reflects an accurate true cost and improves the classification of the incurred cost of a company during production periods. There are benefits for implementing this costing system to target product costing and analyze specific product line profitability. It allows business decision makers to appropriately price goods or services.
Activity based costing can benefit the costing process in a variety of manners. One benefit is that the number of overhead accumulating cost pools can be expanded. This will allow a more accurate representation of actual overhead incurred on an activity basis. Costs will be represented by activity as opposed to one large cost pool that represents all manufactured products. Activity based costing also allows overhead transfers between high and low volume products. This indirectly raises the unit cost of low volume products.
It can be very difficult when choosing between the two costing methods. Activity-based costing is the most accurate, but it is also the most difficult and costly to implement. It is more suited to businesses with high overhead costs that manufacture products, rather than companies that offer services (Woodruff, 2019). Since activity based costing methods are advantageous for representing the most accurate cost of each product, it is also extremely effective when utilized to identify areas in which resources are wasted on unprofitable products. In other situations, when only external reporting is required, organizations can incorporate traditional costing systems. However, outside stakeholders are continually demanding more accurate information and product analysis. Overtime, the utilization of the traditional costing system will continue to become more obsolete.
Kenton, W., Activity Based Costing. Investopedia. February 18, 2019. Retrieved from: https://www.investopedia.com/terms/a/abc.asp
Woodruff, J., Traditional Costing vs Activity Based Costing. Small Business Chronicles. January 31, 2019. Retrieved from: https://smallbusiness.chron.com/traditional-costing-vs-activitybased-costing-33724.html
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