Benefits of Activity Based Costing Essay Example for Free

Benefits of Activity Based Costing Essay In order to make a profit on production, the firm would have to charge a price that is greater than the cost of production. Generally, the cost of production is understood to be the cost of producing a good plus the cost of transportation to the consumer. In order to stay in business, and therefore, to avoid losses at all possible costs – the firm must cover all costs related to the production of the good and include all costs to deliver the same to the consumer at a price that is higher than the cost of production. The operating or overheard expenses of an enterprise are generated by its activities to perform its business and/or manufacturing processes successfully. As its name implies, activity based costing relates the costs facing the enterprise to its various activities. By so doing, this system of costing provides pretty accurate information about costs, allowing businesses to effectively manage their overhead expenses in order to increase their revenues (Cooper, 1988). It is but commonsensical that companies may work on cutting their costs once they know what is driving these costs. By improving their processes in order to cut costs, businesses may realize greater profits than before. What is more, by identifying high costing activities needed to produce certain goods or serve certain customers, companies may decide to focus instead on low costing products or customers by reducing their production of or service to high costing products or customers. In this way, they may shift their focus to products or customers that are more profitable to produce or to serve. Thus, management experts cite the following benefits of activity based costing as opposed to traditional methods of costing: Identifying the most and least profitable customers, products and channels. Determine the true contributors to— and detractors from—financial performance. Accurately predict costs, profits and resource requirements associated with changes in production volumes, organizational structure and resource costs. Easily identify the root causes of poor financial performance. Track costs of activities and work processes. Equip managers with cost intelligence to drive improvements. Facilitate better Marketing Mix. Enhance the bargaining power with the customer. Achieve better Positioning of products. (â€Å"Activity Based Costing,† 2008). Businesses that benefit the most from activity based costing are those with high manufacturing operating expenses or overhead costs. These costs may result from a diverse range or products, intensity of capital, or vertically integrated system of manufacturing. Activity based costing may help such businesses not only to understand but also to control their operating expenses so as to increase their revenues (O’Guin, 1991, p. 76). Organizations with large marketing, sales or distribution costs may also reap great benefits from activity based costing. As mentioned previously, this method of costing identifies those customers that are most profitable from those that are least profitable. This provides insight to management on how to improve operations. With activity based costing, such businesses may be able to answer questions such as: â€Å"What discounts are appropriate for large orders? What size accounts should salespersons no longer call on? How effective is advertising to different markets? † (O’Guin, p. 76). Firms that are experiencing sluggish or low profitability on increasing sales may be suffering from growth that is unmanaged. It may very well be that these businesses are selling products at losses to a number of customers. The accounting system of accurately measuring costs, that is, activity based costing, would allow these firms to determine which of their customers and products are generating revenues and which are not (O’Guin, p. 76). O’Guin describes another benefit of the activity based costing system thus: Even with a diverse product line or customer base and very high profitability, a company lacking an ABC system is surprisingly vulnerable. Product profitability probably varies widely across the company. Highly profitable products present an irresistible target to new market entrants. Management should know which products are reaping enormous margins, so they can erect barriers to entry. (p. 76). Also according to O’Guin, the activity based costing system provides not only strategic but also tactical benefits to businesses that implement it. Whereas benefits that are strategic in nature may be realized only once in a blue moon, for the simple reason that organizations cannot be expected to change their pricing, business operations, distribution or manufacturing processes each year – tactical benefits may be realized constantly. Indeed, activity based costing could help businesses not only with reduction of overhead costs, but also just-in-time support, improvement of quality, decisions about design, and investment in capital. Thus, businesses that implement the activity based costing system may improve their profitability on an ongoing basis (O’Guin, p. 76). In the twenty first century, companies that have a competitive edge are those that maintain flexibility, a trend that has been recognized as a critical factor for success since the 1990s. Life cycles of products have been shortened and focus on the customer has become increasingly important. As economies of scale virtually disappear, manufacturing plants that are successful are those that are able to quickly introduce innovative products and economically produce small quantities. Activity based costing system can help businesses tremendously to achieve these goals. What is more, this system of costing could assist businesses of the twenty first century to achieve their goal to increase employee motivation. With the activity based costing system in place, employees increase their understanding of business activities and therefore their involvement in business operations. So, for example, whenever they see a mound of papers they would see overhead costs, leading them to the following questions: Why do we have so many bills? Why are there so many process involved in our purchase orders (O’Guin, p. 76)? Thus, the activity based costing system encourages businesses to push their rates of cost drivers down. This helps in the reduction of time to setup, streamlines buying, in addition to time taken to development a product. When costs are attached to each of these processes or activities, management may not only measure but also plan improvement (O’Guin, p. 76). As mentioned before, some of these improvements may entail reducing production of goods or service to customers that cost more to produce or service than the others. Hence, the activity based costing system may also lead the business that implements it to improve upon its marketing mix or positioning of its products. If products and customers that cost more than the others are required by the company to produce or serve in the same quantity as before, however, activity based costing system helps the organization to improve its processes in order to decrease its costs without reducing the quantity to produce or serve. After all, it is only possible to improve inefficient processes. Because activity based costing allows the company to weigh the costs of activities against their benefits, firms that use it are in a great position to increase the efficiency of all of their processes so as to gain competitive advantages. References Activity Based Costing. (2008). Value Based Management. Retrieved Jan 27, 2009, from http://www. valuebasedmanagement. net/methods_abc. html. Cooper, R. (1988, Summer). The Rise of Activity-Based Costing – Part One: What is an Activity-Based Cost System? Journal of Cost Management, pp. 45-54. O’Guin, M. C. (1991). The Complete Guide to Activity-based Costing. Chicago, IL: CCH Tax and Accounting.

Method Of Communication And Different Uses Of Communication Essay

Method of Communication and Different Uses of Communication With the development of civilization and written languages came the need for more frequent and reliable methods of communication allowing messages to reach longer distances. This was essential to the control of trade and other affairs between nations and empires.   Ã‚  Ã‚  Ã‚  Ã‚  Early man used cave walls as the media on which messages could be transcribed, this was common for many years, until the Egyptians discovered a special kind of rush (Papyrus) that could be woven to form a portable writing material. In about 105AD the Chinese discovered a way to make a similar substance from wood pulp.   Ã‚  Ã‚  Ã‚  Ã‚  Over the next few centuries printing techniques advanced rapidly, especially through the use of steam power. The first typesetting machine, the Linotype, was patented in 1884 by the German-American Ottmar Mergenthaler. In the meantime, postal services and moved from being privately to nationally owned, and long distance postal services became an affordable option. For the first time, an ordinary person could correspond with people in other countries. A visual semaphore system was also implemented in both Europe and the United States, providing a way of ‘echoing' messages nationally via large towers placed in strategic positions; however this proved slow as each method had to be verified to ensure message accuracy. Following the discovery and partial understanding of electricity in t...

America: the Melting Pot? Essay

The Melting Pot? For as far back as history books go there have been stories about people moving from one place to another. Immigration is defined as the movement of people from one country to another for the sole purpose of a stable residence. The United States of America has always been known as the melting pot of the world. Now our country is being faced with people trying to come here illegally and it is creating an argument between legal citizens. Do we allow these people to come here and make their reams real like our ancestors did, or do we take every measure we can to keep them out? While doing research I found that there are many people who are very against illegal immigration. They believe that the people who wish to become citizens need to go through a very vigorous process to gain citizenship. After the attacks on our country, and the ongoing war, many citizens are on their guard. It is very hard to feel safe in such an imperfect world. Many people are scared of what will come and even more terrified that if it happened once that it will happen again. Since many people re so afraid, they want homeland security to be increased along the countries boarders, better background checks on workers, and harsher punishments for the employers who hire the illegal aliens when they know that the workers do not have the proper paper work and are not legal citizens. On the other side of the argument, some Americans feel that it is wrong to punish these people who are Just trying to improve their lives, and the lives of their families. They believe that America was based on a dream, the same dream that our ancestors had when they came here looking for a better future, Just as the people that are llegally trying to get into the country want to do. This does not mean that these people support how the immigrants are trying to get around the system, Just that they should be given a better chance at gaining their citizenship. They want the government to help the immigrants who cannot afford to go about gaining their citizenship legally. This then opens up another argument of who will end up paying for their citizenship, and why should natural born citizens have to pay for others to come into our country, take what few Job opportunities there are left and in the long run, over-populate the country. When choosing a new country to live in, people travel to many places to find the perfect fit. Many countries are not as open and accepting to immigrants as the US is, so that is where they decide to make a new home. While many immigrants look upon the U. S. to make their dreams come true, there are many people who try to come here illegally. These illegal immigrants are often called â€Å"aliens†; they also share the same hopes and dreams of coming to America for a new life, but cross the border without the proper permission. Many reasons they have difficulty crossing the or cannot afford it. They are determined to get here to create a better life for themselves, which then creates a problem for America. The Department of Homeland Security estimated in December 2003 and that 8 million to 12 million illegal aliens resided in the U. S. and 700,000 new illegal aliens enter and stay each year. Many Americans fear that since there is such a great amount of people coming into our country that they will take Jobs and cost our citizens more money. Apologist try to make it seem like illegal immigration is a victimless crime, however others find that that this is a serious problem that causes substantial harm to American citizens. Public funds are being greatly drained because of illegal immigration. The quality of education, health care and other services for Americans are undermined by the needs of endless numbers of poor, unskilled illegal entrants. Another great fear of many citizens is that the presence furnishes of an opportunity for terrorism. With these immigrants sneaking in, being unnoticed it makes it difficult for our government to know whom posses a threat to our society. Most illegal immigrants only come here to improve their lifestyle and to get work. However, it is feared that if terrorists see how easy it is to come in to America nnoticed, that they will do the same and that only means bad things for the safety of our countrys citizens. Some people think that the government should give all illegal immigrants legal status to bring them out of the shadows. Others then fear if we show openness and such accommodation to people who have illegally crossed our boarder that it will send the wrong message to the rest of the world that we condone illegal immigration. This then creates an even bigger problem that America will be forced to face forever. Some citizens feel that it is hard for them to create an opinion on this issue when it has not directly affected them. I am one of those. I have never had any difficulty getting housing, or a Job because of illegal immigrants. The area that I am from does not have any issues with employers hiring people with forged papers, or any of the sorts. However, after doing all of the research I find myself torn between both sides of the argument. I do not believe that people from other countries should be allowed to cross our border, without our government’s knowledge. It is for the safety of the American people that officials know who is in our country and who may pose a threat. Also, it seems as though handing out free passes to those who have already come ere illegally is a way to try and make the situation go away, and that is never a good solution. One cannot blame people for trying to escape a bad life. America prides itself on the freedom it gives its’ people. Our fore fathers created this country on a belief that if a person does not agree with the government of his or her country that they should be able to leave that country to live in a place where they can believe what they want to believe, and become anything they want to become. A lot of early immigrants came to this country with hardly any money to spare they came on a hope and a wish hat coming here would create a better life for them, their children, and their children’s children.

Vertical Imbalance in Fiscal Federalism A Hindrance to...

Vertical Imbalance in Fiscal Federalism: Fiscal federalism is a sub-field of public economics that focus on understanding the instruments and functions that are best centralized and effectively placed in the domain of decentralized governmental levels. In other words, this concept can be described as the study of how expenditures or competencies and revenues or financial instruments are distributed across various vertical layers of administration. As a result, this concept consists of a set of guidelines that are helpful in developing financial relations between the national and sub-national governmental levels. Notably, the notions of the concept of fiscal federalism are associated with both the vertical and horizontal financial relations. A vertical imbalance in fiscal federalism is normally identified as a hindrance to sub-national accountability and good financial performance. Actually, these imbalances are usually considered as being the reasons for sub-national financial profligacy and soft budget limitations. The vertical imbalances in fiscal federalism attract huge scrutiny during times of financial difficulties when deficits become persistent resulting in frequent bailouts. These sub-national bailouts can put severe strains on inter-governmental financial relations to an extent that re-centralization is used as a means to remove the vertical imbalance. Due to their impact on financial performance, understanding the vertical imbalances is crucial for the design of