Fixed Asset Allocation

Part I:

How does ABC differ from other allocation methods?

In traditional cost accounting, cost is assumed, for the consumption of resources, On the other hand in Activity Based Costing cost objects consume activities. Traditionally, cost accounting uses the allocation of volume related, it works on the priority method, and Activity based costing works on the basis of different cost drivers at various levels. Moreover, activity based costing is process oriented, and traditional cost accounting structure oriented. In The Traditional System Cost Information was "acceptable" in production environments where direct labor and direct materials were the predominant factors of production, the technology was stable, and the indirect costs were not very important and had a limited number of products in the range offered by the company. (Hicks, D. T. 1999)

Describe the main characteristics of ABC.

ABC Activity-Based Costing is a methodology that measures the cost and performance of the Activities, Resources and Cost Objectives. ABC system is a process of allocation of indirect costs in two stages in which, first stage, resources are consumed by the activities and, in the second stage, the cost targets products, customers, markets, etc. consume the activity. The ABC system focuses specifically on the management of activities such as way for companies to gain competitiveness.

What type of companies tends to benefit from ABC?

The rapid growth of ABC is due to a host of interrelated factors. The change in many companies has been tremendous during the 80's. These changes make manufacturing more productive resources are required in four areas in particular: Including logistics, where the scheduling of work became more complex and more complicated planning. In the alignment of resources with production plans, in achieving quality through the production process, ability to cope with the changes, for example in the range of products or specifications, technology and customer requirements. The increasing workload in each of these areas was not simply related to manufacturing activities exclusively to what it claimed was the classic system of cost allocation, which was based on the fact assume that there was a sole source of generation Cost Driver and this was the Volume of Production. By contrast, the resources required by the activities of the new production environments, depended more on increasing diversity, complexity, quality and flexibility of production output. Thus arises the need for a new information system that reflects the complexity of resource consumption and extend business through activities other than manufacturing.

How to apply an ABC system

The ABC system can be applied in any industry, whether manufacturing and services. The basic difference is that the "output" in a service industry is an intangible. The system ABC is more expensive to install and maintain than a traditional system, as the ABC extends to activities larger and more complex. From the point of view of behavior generated by the organization, the ABC can produce large rejection if it is a process supported from the leadership and opinion leaders of the company. 

Part II

Lean manufacturing

Lean manufacturing is the American name for the Toyota ...