Acounting and finance Essay Example | Topics and Well Written Essays - 1250 words

Acounting and finance - raise ExampleTo efficiently administer the various functional aras for which the manager is responsible and also to co grade these functions and activities within the overall framework of an organization is the two major purpose of an accounting outline in occurrence the management accounting frames contemplate to analytically measure and report all financial and non-financial information so that the managers can make fruitful and effective decisions to fulfill the goals of an organisation. Thus the focus of the management accounting is primarily internal reporting of the various activities. Modern day management accounting plays a really evidential role in both planning and control decisions. Hence in the transition of decision do the management accountant has to make a number of realistic and system of logical assumptions in arriving at an optimal solution for the problem on hand. For enabling the management accountant to take a stand on the var ious assumptions in the process of decision making, the cost of the product or service is a key out element. traditionally there atomic number 18 various methods of ascertaining the cost of a particular product or service. angiotensin converting enzyme of such methods is collecting the various cost elements and allocating them to the particular product or service which is known as unit of measurement costing.As outlined above one of the traditional ways of ascertaining the cost is to apportion a model cost for severally unit lasciviousd on historical cost data. This system of ascertaining cost and base the managerial decisions has lost significance due to the fact that modern companies tend to have lower real variable be as against a very high degree of fixed costs. Also the equipments that are being used have become more complex and specialized and they form a very significant proportion of total costs. In addition organization with a wide range of products has processes w hich are common to several finished items making cost allocation irrelevant or meaningless.3.0 ALTERNATIVE TO conventional COSTING formationS-ACTIVITY BASED COSTING SYSTEM ( alphabet SYSTEM)An alternative to the traditional costing systems, modern day multi process business corporations adopt the body process based costing system which has proved a real son of a bitch in the hands of the managers for making proper business decisions. The activity based costing system is a refinement of the costing system in which focus is centered on the individual activities as the profound cost objectives. An activity in an organization may take the form of an event, task or unit of work with a specified purpose. To illustrate the design activity, set up activity, manufacturing operations, shipping activity, distribution activity and administrative activity can form the basic key costing elements for the refinement of the costing system and thereby to arrive at the proper cost of a particular unit or service.ABC system aims at calculating the costs of the individual activities and assign costs to cost objects such as products or services on the basis of the activities undertaken to produce each product or service.3.1 FEATURES OF ABC SYSTEM OF COSTING Fundamentally there are three distinct features of the activity based costing systemThey are1. ABC system works by creating smaller cost pools linked to different activities. Traditionally organizations used to have single overhead cost pool related to several cost pools.2. For each activity-cost pool ABC system aims to measure the activity performed and have this as the base.3. In some cases costs in a cost pool can be identified and traced back to a particular Product or department or service and such kind of direct tracing of costs improve the cost accuracy as no assumptions are made to allocate the common costs.The logic behind the working of the ABC system of costing is that the more we create finely structured activit y-cost pools, great is the