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Essay / Research Paper Abstract
This 3 page paper looks at the differences between traditional cost accounting and as activity based accounting and considers national differences in the way cost accounting practices are adopted. The bibliography cites 4 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEcostnat.rtf
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activity based costing (ABC), different organizations may choose to use different methods of accounting, which will result in trade offs (Abdallah and Li, 2008). When looking at accounting systems
they appear not only to vary between firms, but on a more fundamental level there appear to be national differences reflecting national cultures and the choice as well as
use of costing systems (Abdallah and Li, 2008; de Modesti and Eriksen, 2008; Krumwiede and Suessmair, 2008) . When looking at the two basic approaches there are advantages and
disadvantages to both traditional and ABC methods. Traditional accounting is well understood, with overhead costs allocated on an assumed basis, which may or may not accurately reflect the costs
that are incurred. It is also a useful approach where there is the desire to use marginal costing to assess new projects, especially if they do not have a direct
value creation, but create value by supporting the sale of other products. A based on a payroll system it is also possible to ensure that all overheads are allocated, although
there may be over or under absorption. If costs are allocated in a realistic manner and there are reviews rational costing can be very effective at allocating indirect costs
(de Modesti and Eriksen, 2008). This is an approach that may be seen as one aimed at profit maximization whereas ABC has a cost control focus (Lockhart and Taylor, 2007).
Activity based costing takes a different approach, this is based on the activities in the operations. To use this approach there needs to
be a process that has at least two stages, as such it can be used in both manufacturing and services. The activities that the company undertakes are deconstructed. The individual
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