The paper “ The Traditional System vs Activity-Based System for Super Bookstore's Development" is a convincing example of a case study on business. SB is located in a large city and deals with the selling of books and music CDs. In addition to their portfolio, they have a café . The operation is at capacity, and they focus on allocating the selling, general and administrative expenses for the individual product line. It utilizes the cost of merchandise considering each product line. A problem has arisen that regards the management making up their mind on the type of approach to give to the optimization of pricing and the costing.
The accounting system underuse and the proposed activity-based system need to be analyzed for a clear decision to be taken on the best approach. AnalysisThe traditional system that is utilized by SB is aligned with accounting principles and is an easy procedure to implement considering a firm producing a single product. The use of computers demands real-time stock and activity analysis, which is not supported by the traditional system of management. A look at the financial data of SB reveals itemization based on items and their cost.
On the other hand, the activity-based system focuses on looking at activities that add up to the delivery of the required revenue (Carli & Canavari, 2013). The system factors time and does not negate other activities as the traditional approach does. SB analysis of the system illustrates the allocation of cost based on time like in the Hours of shelf-stocking time. The balance sheet in that ABC system captures real costs encountered in which the traditional system always makes an assumption.
ABC has itemized shelf-stocking, customer support, purchasing, and receiving, which are evidently a missing inclusion in the traditional system (Reyhanoglu, n.d. ). By capturing more costing instead of mere assumptions, the system is accurate. Consider the percentage SG & A costs, which are 14%, 22% and 62% for books, CDs, and café , respectively the ABC approach. On the other hand, the traditional approach records 21%, 22% and 23% for books, CDs, and café respectively in tradition accounting approaches (Appendix A). In this case, SB will be able to allocate costs to the required products for sell.
It is an imperative approach since the elimination of irrelevant costs comes out clearly. A focus on the costs in a traditional method is valued at $1,485,584 while the ABC approach records a value of $1,485,583. The variation is slight yet amounts to a big value for large companies and over longer period analysis. Income values vary too for varying approaches at $332,499 (5%) and $350,750 (5%) for traditional and ABC approach to accounting respectively (Appendix A). ConclusionFrom the analysis, it is evident that the ABC system captures more data and accounts are easily understood and identified.
The company management is better informed concerning the daily activities and their associated cost hence will be able to make the best decisions best on the analysis. Since the modern economy and the descent of computers, enables real-time analysis, ABC is the technique SB should adopt in order to assess effectively their operation. Since it itemizes individual activity and the cost, elimination and working on means to reduce or share in the cost associated with it becomes easy.
The imperative approach to ABC adoption by SB should be because the system is accurate.