Activity Based Costing

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Activity Based Costing

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Activity Based Costing

One of the many information that a company should know is the cost of their products or services . This will be used to evaluate the efficiency of the company and its performance . There are many methods that the company can use to evaluate the cost of the products . There is the use of the traditional cost allocation or the activity-based costing . For the past years , activity-based costing is the more commonly used . This is

because it is considered to be more accurate than the traditional cost allocation

Activity based costing is simply the method of determining the cost of the products or services base on the specific activities that contributes to the cost of the products or services . This gives accurate results and is a good basis for decision making for the company . On the other hand , traditional cost allocation is the method that is based primarily on organizational activities . Because of this , there are several problems that the traditional cost allocation faced like including in their calculation the cost of idle products . But even if this is the case , the traditional cost allocation is still the main methodology that some companies used while the activity based costing provides supplementary information for the company to reinforce the traditional method (Gale , 2006

It is the objective of this to determine of Steinway piano is a good candidate for the use of activity-based costing . Steinway is a company that manufactures high quality pianos for over a century . The manufacturing of the piano is made by well-trained workers . It will start on the production of the soundboard of the piano . There are also workers that are trained for the attachments of the strings to the piano . This is a very difficult work and the on that will be working on it needs to master the proper way of doing it . Other parts of the piano are manufactured by other groups . The parts are then assembled to a beautifully made piano (Steinway Sons , 2008

It is said that the activity-based cost is focused on the specific activities . In the case of the Steinway piano , the production of every part of the piano is the key activity . The cost of these activities will be of great importance in the evaluation of the cost . The Steinway piano is a good candidate for activity based costing because it can accurately measure the cost of these activities . They give more focus to the production of every piece that is needed for the production . The different activity groups are also known which helps to make the evaluation faster . Each key activity is known very well that the source of the cost for every activity is easily determined . This will also help assigning cost to every activity even faster . Aside from these , the rate of work is also important in the analysis of the cost in activity-based cost . This will depend on the number of hour...