The paper "Management for Planning and Control" is a good example of a finance and accounting assignment. ABC (Activity-based costing) is a model of costing, which identifies activities in a firm and assigns the cost of each resource to the products and services depending on the exact consumption by each. Through this method of cost, the firm is able to estimate the costs of specific products more precisely as compared to other costing methods. The firm is also able to identify and eliminate the products that are not profitable and reduce the prices of the overpriced products.
Many firms have adopted this costing model due to its merits. Advantages This model provides accurate costing for the products and services in an organization. This is because all the products and services are split into specific activities, and each activity allocated costs depending on how much resources it consumes. This results in inaccuracy in determining costs for each product. It provides a better understanding of the factors that affect the profitability of the firms like distribution channels, region, consumers, and brands. The method then links the profitability of each activity, and how each activity consumes the firms' resources.
Through this, the firm is able to determine which activity is profitable than others. It utilizes the unit cost for each product instead of the total cost. This way, the firm is able to how much it costs to produce each product or service. Consequently, the firm is able to know how many resources each product is using, and how many resources to purchase for each product. This reduces the wastage of resources. ABC system enables the accounts manager to estimate the cash flows of the business.
When the overheads are divided into single activities and costs allocated to each activity, the accounts manager is able to accurately estimate the number of costs that will be incurred. ABC system allows for continuous improvement in the manufacturing process. This is because the planning and control of the manufacturing process are focused on the process level.
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