The Cost Of A Cost Accounting System Essays

947 Words Jul 15th, 2015 4 Pages
A cost accounting system is a process or a method used by a business to estimate the cost of their products and to determine how a firm utilizes and earns funds. It aids management in making decisions and in the planning and control of an organization. All types of businesses, whether service, manufacturing or trading, healthcare, require cost accounting to track their activities. Therefore, different firms follow different methods for verifying cost accounting. This paper focus on activity based costing (ABC) method that is used in two of the studies described in this paper and advantages and disadvantages associated with the method as well as associating accounting information to financial management for improvement of a firm.
The activity-based costing or "ABC", approach requires the organization to identify the activity, estimate the cost of the activities, assign a cost driver, collect activity data for each service, and calculate the total cost of the service by aggregating activity costs (Gapenski, 2014). It uses upstream approach for cost allocation. Therefore, ABC approach determines all activities associated with production, assigns a cost to the activities and then determines the cost of the product.
Study one was conducted in Nuclear Medicine (NM) Department of a tertiary care government teaching hospital by utilizing ABC method of costing. While traditional costing allocates overhead and indirect costs in proportion to production volume or to direct costs,…

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