Using Alternative Accounting Methods Accounting Essay

780 Words Jul 12th, 2016 4 Pages
Background
ABC had lost ground in the 1990s following the presence of alternative metrics such as Kaplan’s balanced scorecard and Economic Value Added. In a 2008 independent report, manually driven ABC was considered to be an inefficient use of resources. Also, the metric was expensive and difficult to implement for small gains and had a poor value also stating the need to use alternative accounting methods. However, an activity-based recording was suggested to be used with the activity based accounting and not as a replace of any costing model. Instead, it would be used to transform concurrent process accounting into a more realistic approach (Wilson, 2015).
Traditionally, cost accountants arbitrarily added a huge percentage of analysis into the indirect costs. Also, activities entailed actions performed by both people and machines. Following the increase in overhead costs percentages, the technique became less accurate since indirect costs were not caused equally by all products. For instance, a particular product could take more time in an expensive resource than the other while the amount of direct labor and resources remains the same. Therefore, the additional cost incurred for machine use is not considered when the broad on-cost percentage is added to all products. As a result, there arises the risk of one product subsidizing another when several products share common costs. Some products end up losing their actual value in the process which goes into catering for…

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