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Essay / Research Paper Abstract
This 3-page paper compares traditional cost accounting (TCA) with activity based costing (ABC). Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: AS43_MTabctracc.rtf
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Unformatted sample text from the term paper:
methods and what costs need to be allocated where, the situation isnt quite so strict. Two methods of costing and cost allocations that see a great deal of use are
activity based costing, or ABC and traditional cost accounting, also known as TCA. Traditional costing methods operate more with financial reporting requirements in
mind. According to the Encyclopedia of Management, TCA allocates costs based on single volume measures. These can be direct-labor hours, direct labor costs, machine hours, and so on. The TCA
method is a convenient means of complying with financial reporting requirements. The traditional approach consists of three steps. First costs are accumulated
within a production or non-production department. Second, the non-production department costs (such as overhead and supplies) are allocated to production departments. Finally, the resulting/revised costs are then allocated to various
products and services. The Encyclopedia of Management points out that there are some problems with the TCA method, even if it is
compliant with most accounting rules. The main problem is that costs can be distorted - if, for example, the cost of idle capacity is charged to a particular product, this
means the product is being "billed" for resources that were never used. Furthermore, while TCA works well with tangible items and manufacturing, its more difficult to make it work in
companies that are service-oriented, or that produce some kind of intangible service. In an effort to try to produce more realistic costs, accountants
started using activity-based costing. ABC took hold during the 1980s, when manufacturing and other enterprises began moving more toward the quality movement, and were trying to determine where waste in
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