The current paper elucidates the analysis of the research paper or the journal articles on the topic of management accounting that is “Activity based costing”. For then analysis purpose and completion of the requirement of assignment, two journal articles based on the activity vase costing have been selected. The application of the management accounting concept has been changed due to change in the environment in which the firm are operating as suggested by the review from literature. The change in the environment for which the organization requires implementation of the advanced concept of management accounting us attributable to the factors such as development of new strategies of management, information technologies, highly competitive environment, increased focus on quality and customer services. A new costing accounting and the management system have led to the introduction of costing system such as Activity based costing (Ax and Greve 2017). During the last decade, there have been significant changes in the concepts of the management accounting tools as evident from the examination of the research paper.
Activity based costing is a method of costing that is associated with assigning of the cost to each activities by their identification. This new and advanced method of costing intends to assign more indirect costs to the direct costs against the traditional method of costing. The main focus of activity based costing is on identification of activities used in job processing by focusing on the process of production. Using the similar process, the individual activities are grouped into a cost pool using the cost driver for single activity. The indirect costs are assigned in an accurate way using such costing method and assist in allocation of overhead expenses to the jobs and product based on the total amount of activities employed in the production process. The methodology of activity based costing has the objective of reducing overall cost by their allocation in a precise manner. A casual relationship is established between the cost drivers and indirect cost which would create responsible, transparent and drivers of cost conscious encouragement. Each activity would be analyzed in an adequate manner by employees by gaining an understanding about the cost categorization due to the activity based costing implementation. Organization implementing such costing method helps in elimination of activities that do not contribute value (Bedford 2015). Moreover, employing the activity based costing mainly in manufacturing organization would help in computation of integral products costing.
A management accounting journal on the topic “The benefit of activity based costing to manufacturing industry” measures the satisfaction of the operating and financial managers with the activity based costing in several manufacturing organization. In addition to this, the use of information of ABC was also evaluated for supporting the decision making in organization. The findings are supported by the results of the interview conducted in the research paper which evident a considerable improvement in the system of cost management after the implementation of such advanced costing system. It is also suggested by the evidence that the information generated from the system of activity based costing is used by manager to support their strategic and operating decisions (Swenson 1995).
The interest in the activity based costing has been generated by few innovation and acceleration of management accounting systems. Any major change in the costing accounting system of manufacturing firms are time consuming and expensive. Description of the application of activity based costing systems at multiple firms is supported by few studies. The research is conducted by going beyond the approach of case study and it seeks interviewing mangers of the manufacturing firms about such costing system. The objective of research paper is to determine the experience of manager of such firms in terms of their satisfaction following ABC implementation. The second research objective is to determine whether satisfaction of ABC corresponds to frequent use of system of activity based in decision making.
The process of collecting data utilizes the telephonic and face to face interviews resulting in allowing verbal exchanges and higher rate of responses with the participants. It has been found from the analysis of the article that the benefits of the costing system are somewhat controversial, the central question of the research paper is to identify how beneficial the costing system is to manufacturing firms (Bromwich. and Scapens 2016). Evaluation of this central question is done by segregation of the question into three parts. Do the greater satisfaction is reported by managers with the product costing, performance measure capabilities and reduction of cost.
It has been found from the analysis of the research paper that the sampled firms supported the activity based cost management system. However, there were variations in the techniques of activity based costing and a wide variety of industries are represented by the participants. It was ascertained that the dimension of activity based costing benefits each of the firms selected in the sample. A higher level of satisfaction was reported among the managers of firms with their cost management system which also provided specific examples of how such costing system supports decision making in the organization (McLean et al. 2015).
The second article has been extracted from the journal of management accounting research that is titled “The value of activity based costing in competitive pricing decisions”. The current research paper focuses on the development of two new approaches of management accounting that is balanced scorecard and activity based costing by using innovative action research method. The underlying theory on the management accounting concepts has been enhanced for the application and improvement of the practice. An experimental evidence on the benefits of activity based costing for setting of price in competitive market is explored in the paper. It has been claimed that such costing system have a value enriching impact on the profit performance and pricing decisions as better pricing differentiation is allowed among customers, product and markets. Such benefits are mainly attributable to the individual market where the firms are monopoly firms. However, it is suggested by other evidence that the competitive market do not take the benefits of such costing system. it has been shown that regardless of the costing type, the superior market players learn about the price offers from the market opportunities. Therefore, the effect of costing system for setting the price can be reduced sharply by the opportunities that are learnt from market competitiveness.
The primary objective of the research paper is to conduct a study to learn the overshadow value of activity based costing for setting price using the availability of better informed decisions. in addition to this, another objective of research paper is to test whether the pricing decisions improves due to activity based costing when less informational value is available in the market. In the experiments, pricing decisions are set by participants in competitive duopoly where the market feedback and accounting report are manipulated as the output of given costing system depends upon the implemented methods of costing (Eriksson et al. 2015). The choice of costing system is dominated by highly informative feedback of market. In addition to this, it is suggested by the result that when accounting losses are generated by cost biased allocation then the cost biased data are outperformed by the activity based costing for a particular segment of market. The price choices of superior competitors are hesitantly followed by the market participants. The investigation on the potential benefits of activity based costing system helps in providing informative feedback to competitors and concludes that there is no persistence of the impact of alternative system of costing when there exist opportunities to learn from the feedback. It is demonstrated by the conclusion that they are not always valid for allocation of cost across markets. Under the volume based costing, accounting losses are produced by market decisions that lead to optimal pricing decision compared to activity based costing. In the absence of the accurate activity based costing system, the accounting loss results because the prices are based on the cost data that are biased rather than performance and competitive market feedback. On other hand, the accounting profits under the optimal pricing are produced by the activity based costing and volume based pricing. Furthermore, it has also been found that the information on the fact that activity based costing improves the price when the feedback from competitors is less informative. The fact that decision making is enabled by the activity based costing reports that such costing method had strong benefit over the traditional cost data that is biased (Handfield et al. 2015).
The two journal articles that have been selected concentrates on the cost management system of activity based costing. Both the research paper outlines the benefits of activity based costing system by taking into account different aspects. However, the focus of the research paper is on the system of the activity based costing. While the first article has the research objectives that intends to analyze the benefits of such costing system in the manufacturing firms. On other hand, second research paper concentrates on analysis of importance of activity based costing in setting price in the competitive markets (Hiebl 2018). It has been found that the traditional costing system is outperformed by the activity based costing even in less informative settings. This is so because the irrelevant feedbacks from competitors are filtered from the decision process in such settings. moreover, the cost management system of manufacturing firms have been improved due to the implementation of the activity based costing (Shields 2015). Therefore, both the research paper contributes to the new system of costing in a positive way as the findings are the evident of the fact that activity based costing plays a significant role in improving the costing system of organization and in setting prices in the competitive market.
The findings of both the research paper provides useful information to mangers and accounting professionals by strengthening their key accounting concepts. Accounting methodologies applied in the research paper have detected some critical areas where a relationship is created between costing and process. The product sourcing decisions are impacted by the costing methods which in turn influenced the strategic and supportive decisions of managers and executives in organization. Furthermore, the research papers have also contributed to cost accounting theory translation by providing evidence by fitting into the models employed. The importance of accounting data in setting the pricing of product have been identified that assist accounting professionals in realizing the importance of accounting concepts and helped them to understand the different between traditional accounting reports and advanced accounting report (Van der 2016).
Conclusion:
The current report illustrates the importance of the activity based costing by evaluating and analyzing two research papers that have been extracted from the journal of management accounting. From the analysis of article one, it can be inferred that the manufacturing firms have experienced an improvement in their cost management system after they have implemented the activity based costing. Findings from the second research paper depicts that activity based costing has a positive contribution in setting the prices in the competitive market that is when there is less informative feedback. The two outcomes that are revealed from the research papers that the activity based costing play an influential role in setting price in competitive market. Second is that the system of cost management of manufacturing companies has experienced an improvement due to the employment of activity based costing. Therefore, it can be concluded from the analysis of the two research papers that the activity based costing is an important development in the management accounting field and tends to benefit the organization by making an improvement in their costing system.
References:
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