(Love) ACC 403 SLP 4 Activity Based Costing Essay

(Love) ACC 403 SLP 4 Activity Based Costing - Essay ExampleThe concept of Activity Based costing has its origins in the U.S manufacturing industry, where increases in technology led to a decrease in fixed cost and increase in variable costs and the number of steps in each manufacturing care for as the automation process increased. For example, manual labor declined as robotics was introduced in the automotive industry, while the number of mechanistic processes and increased use of machinery meant that depreciation and shift costs went up. Activity based costing is, as the name implies, based on determining the costs of different activities involved in the manufacturing or issue process, and then identifying the costs of each activity (Kaplan & Cooper, 1988).In a company like Apple, there are also a number of activities involved in manufacturing its laptops, PCs and monitors. While traditional accounting takes into account only the cost of activities actually performed, activity b ased costing also includes the wait time for inventory part etc. which are also included in overall costs of production. Activity based costing has been used to define re-engineering processes and eliminate unnecessary costs and processes (Kaplan & Cooper, 1988).Activity Based Costing is implemented by first identifying the cost drivers for each activity. Cost drivers are the basis for allocating product costs to the activities performed. Volume and clipping are the most commonly used cost drivers (Turney, 2010)- everything else is attributed to a charge that is directly allocated to the activity in question being performed (Kaplan & Anderson, 2007). Volume means units of hold or products produced. Time means length of time taken to complete a specific activity. If Activity Based Costing was used at Apple, we could put up the following chart for activities performed from Jan 1-Dec 31, 2011In practice, many difficulties are encountered while