Traditional Absorption Costing versus Activity Based Costing Assignment

Traditional Absorption Costing versus Activity Based Costing - Assignment Example In fact Geri and Ronen (2005) indicate that cost accounting systems do not normally command a high ranking in the hierarchy of most organisations, it is the information that they generate that plays a critical role in the performance of organisations and in the decision making process. The range of systems available and the claims made by the proponents of each have led to several debates. However, some of the arguments have some merits in as much as they allow for a better understanding of the methods that are being utilised. Some of the techniques and systems in use are of traditional management accounting domain while others are of the more recent strategic management accounting domain. Some of the criticisms that have been put forward in relation to traditional systems are that they fail to provide the necessary information that would improve the strategic decision making process (Johnson and Kaplan, 1987; Bromwich and Bhimani, 1989; Roslender and Hart, 2003). Suggestions like th ese are based on the perceived inability of the traditional systems to provide information that would make the organisation more competitive and therefore improve long run performance. In fact, Benjamin et al (2009) indicates that the inefficiencies of traditional systems especially in the area of absorption costing in coping with modern business environments have been of great concern. The gaps that are thought to exist as well as changes in the manufacturing industry including the move from being labour intensive to being capital intensive have provided the impetus for innovation in this very critical area of business (Benjamin 2009; Chenhall 2003; Lukka and Shields 1999). Johnson and Kaplan (1987) indicate that this change can be found in the application of ABC to manufacturing concerns. This paper looks at two forms of full costing systems - traditional absorption costing and the more recent activity based costing (ABC). Both methods take a different approach in assigning cost t o products. 1.1 Absorption costing Absorption costing has it roots in the manufacturing industry (Benjamin et al 2009). BPP (2011) indicates that the objective of this method of costing is to include an appropriate share of an entity’s overheads in the cost of a product. What is appropriate should be reflective of the time and effort that was used in the production of the product. The method becomes complicated when an organisation produces a mix of products and activities or resources used do not bear any relationship with the volume of items produced. Geri and Ronen (2002) indicates that the use of this method requires the allocation of a proportional rate of the fixed cost of production to units produced but which has not yet been sold (Geri and Ronen 2005). 1.2 Activity Based Costing Activity based costing (ABC) was developed as an alternative to absorption costing. (BPP 2011). This method of costing identifies the cost drivers of the activities of an entity’s prod uction process. Overheads are then charged to products based on how they utilise a particular activity. 2.0 Literature Review This review while critically assessing the literature examines the features of two costing methods and looks at the justification for their use. It also provides a comparison while it examines the advantages and disadvantages of using

See my attchment Essay Example | Topics and Well Written Essays - 1750 words

See my attchment - Essay Example From decades this procedure was being followed in hospitals and Medicare centers which was a time consuming and hectic work. Healthcare Information database was thus the need and necessity of time according to the prevalent healthcare scenario in the country. To take care about patient’s health record and doctor patient fast interaction; National Health Services (NHS) took care the responsibility of introducing Health Information Technology (HIT) into hospitals and Medicare centers of United Kingdom. The key reasons of implementing this mega setup was to get rid of hardcopies of patient records, fasten the process, serve the patients well and ease the doctors as they would have previous health record of patients available all the time. United Kingdom government took immense steps for the implementation of this system by providing necessary funds. The purpose of this paper is to have a clear cut understanding of health information technology invasion, implementation, processes and position in United Kingdom Medicare setup. Discussion of the response from government in the adaptation of this idea and reaction attained from the relevant institutions etc. Providing best healthcare services is the intention of United Kingdom government and for this they take essential necessary steps. The progression of technology gave opportunity to humans to maintain healthcare records of patients online on an online portal. The involvement of United Kingdom government was massive in this regard thus National health Services was given the task to implant state of the art healthcare services. National health Services proceeded in taking significant steps about this matter and introduced Healthcare Information Technology (HIT) in the year 2002. The aim was primarily to maintain a centralize database of patients so that it would ease processes (Jha, Doolan & Scott, 2008‎, p.