Activity-based costing (ABC) has become the new standard for almost all companies. Maintaining a competitive advantage about national and international companies has become increasingly important due to increased competition and significantly increased the global economy. In other words, more competition descent units and corporations that do not keep up with the competition will fail. The key to achieving and maintaining a competitive advantage or just to stay for the enterprise is how and where practical measures to reduce costs without sacrificing the quality and quantity of products. Companies that use the ABC method prices were able to achieve these goals. Defining the benefits of activity-based costing are important to understand because there is a lot of work that goes into this new process.
Based on the expenses of the action began in the 1980s because the traditional accounting methods are not able to take into account some important aspects. Traditional methods of calculating costs are specifically designed in the years 1870-1920, and during that time the manufacturing industry has relied on manual labor (direct), there was no automation, variety is very limited products and modern manufacturing enterprises, enterprises a century ago, it was much less overhead. As time and technology from 1960 to 1980, the construction industry has undergone a metamorphosis. Therefore, traditional cost accounting is outdated and cannot provide in-depth analysis shows that businesses need to succeed.
“I think we can see how blessed we are in America to have access to the kind of health care we do if we are insured, and even if uninsured, how there is a safety net. Now, as to the problem of how much health care costs and how we reform health care … it is another story altogether.” Abraham Verghese
In its simplest form, activity-based costing allocates resource costs to the price of the object by activities undertaken for the purpose of costs. This means that the products or services of the company are the results of activities that use resources and expenses incurred. These values are assigned to a task or a particular action based on activities that use or consume resources, and the costs of activities are allocated to any product, service, customer service, business or organizational units (cost items). Cost objects are assigned by the cost of facilities activities. ABC attributes the subject of manufacturing overhead costs, such as products or services by identifying the resources and activities and their amounts and the need to produce output.
Three steps must be done to implement the price system costs ABC. The first step is to analyze the activity of determining the cost of resources and business operations. Now, the company must choose activities that use or consume resources on the basis of cause and effect. Finally, the company must allocate the costs of the activities of the cost of facilities by the relevant activities to cost objects.
There are significant differences between the old traditional accounting methods and ABC costs. For example, in the traditional cost accounting, it was assumed that the funds are used for the cost of facilities about the ABC costing, where the cost of services used activities. Also, the cost of ABS focuses on the process rather than structure. In other words, the company should increase or maintain the activities that add value to the product and eliminate activities that add no value to the product.
There are many benefits that the company uses cost-based to experience following the same crucial in providing in-depth analysis of their manufacturing process. For example, ABC provides cost more accurate prices and information products, allowing the company to perform measurements on the revenue and profitability of the most correct and consumers have a lot of relevant information that can be used to make strategic decisions about product lines and prices. Also, managers have helped the realization of accurately measuring the costs of driving activities. This gives them the opportunity to improve the product and the value of the process in making better decisions, and better customer’s design decisions.
Benefits of activity-based costing can include information that identify where improvement is needed process. Also, improved product costs lead to a better assessment of labor costs by about price, budgeting, and planning. Another significant advantage created using ABC costing the ability of management to determine the cost of unused capacity. Since many companies have sales and seasonal or cyclical variations in production, there are cases where the plant may have excess capacity or unused space. The company has continued to incur costs associated with unused space, and the cost of ABC offers a way for enterprises to these costs regular expenses separate products. The primary objective is to manage the level of capacity to reduce costs underutilization of abilities and prices of goods and services appropriately. There is no case where this is need more than in the healthcare industry, and today is the time to implement this for the best possible results for both patient and professional.