ABC can provide more precise information in determine cost of product and control the quality of the products to prevent sacrificing by competitor. Therefore, TCA system is almost obsolete whereas ABC system is become famous. For the TCA system is determining the cost of production after the produces. ABC can help the management to set clear picture of the objective to guide the company toward given target. To prevent over budget situation and overcome unpredictable occur. ABC system is help to evaluate performance and set budget which can assist the manager to use this information to control and comparison purpose. When overhead is high, diversify products, therefore cost of determine cost of mistake high and competitive is stiff thus ABC is able to calculate the precise cost of product compare with TCA. Therefore, today’s manufacturing most of the management recommendation using ABC to determine costs. ABC can provide reliable information in calculation product costs and is best practice for products and service profitability analysis. Therefore, ABC system is more appropriate to adopt it can help the manager to analysis more accurate cost management than TCA system. This is a reason why the TCA system often report inaccurate in product cost compare to ABC system.īut in the situation, the company where there is a large diversify of products or high level of automation, thus, the overheads’ misrepresentation will be significant in TCA system.
But TCA is fails in assigning non-manufacturing costs such as administrative expenses because it is not absorbed in to products or services. It is an allocate manufacturing costs directly to products or services such as direct labour hours, direct labour costs or machine hours. It is arbitrarily assigning manufacturing costs overhead to units produced (only to product). It is a well know that the Traditional cost accounting (TCA) is a systems usually assigns costs based on single volume to measures such as labour hour, machine hour and etc. While ABC look complex whereas TCA is simple, because ABC required a lot of specializes knowledge to be able implemented correctly and provides positive results. For the today’s manufacturing, ABC systems is most appropriate to adopted for companies to customise products, this is because it can assigning indirect costs more accurately. Hence, for a company using TCA system that make and more and more variety products would lead to large losses. This is dissatisfied whereas two systems which are absorbed the same costs but can use very different amount of overhead. ABC is an alternative to Traditional Cost Accounting in which a company’s overheads are assigned in proportion to an activity’s direct cost. Firstly, is accumulates manufacturing overhead costs for each activity consume Secondly, identifying the resources and activities consume and then assigning the costs to the products, services and customers. (Turney 1991, Pp.50) The ABC is become most popular since1980’s from the rising lack of relevance of traditional cost accounting of assigning costs and to enhance its usefulness to decision making define by English man’s Robin Cooper and American’s Robert Kaplan.ĪBC system follows two stages to identify the cost. In order to allow identify the products and prevent inefficient or unnecessary activities for cost reduction and enter in the wrong marketplace. (Metin Reyhanoglu, Activity-Based Costing System: Advantage and Disadvantage, Ankara University, Turkey, Pp.2) In additional, ABC can provide a company with precise cost information to improve company performance. The Economist, June 29th 2009, Activity-Based costing Thus, ABC can help the manager to obtain more accurate and up-to-date costing information to evaluate the cost budgeting to maximize profit. Share this: FacebookFacebook logo TwitterTwitter logo RedditReddit logo LinkedInLinkedIn logo WhatsAppWhatsApp logoĪctivity-based costing is an information system, that assigning resource of cost to products or services based on the activity consume.
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