The article teaches the readers of the many benefits that may be derived from activity-based costing and the mechanics through which such benefits may be derived. Among others, activity-based costing allows companies, business enterprises and other people to “simplify [their] business and improve its processes by modifying or eliminating anything that is not necessary or does not add to profit.” (Bunch, 2007) This may be achieved through the development of the capability to “make decisions based on facts and not unknown variables,” which in turn may be achieved through the familiarity with the specific costs and resources needed for every step of the production or other commercial processes.
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The article discusses the following main points. First, activity-based costing allows accurate estimation of costs. Instead of an over-all estimation of costs, the use of activity-based costing requires a more definite identification of costs associated with each action or component of the whole business process. Second, this accuracy allows a company to have accurate estimate of how much to charge for their products thus allowing them to achieve a competitive price without sacrificing profit.
Third, the achieved accuracy in the estimation of costs also allows easier identification of areas which may be improved or eliminated. Companies monitor “costs constantly and adjust processes, and occasionally pricing, to achieve the profit level they need.” Lastly, the article points out how the benefits may be achieved through activity-based costing. To do so, it will be first necessary to define and understand the company’s activities.
At this point, employees of the company will play a great role and will thus have to be included since they are the ones tasked with carrying these activities every day. There will also be a need to identify which are value-added and non-value-added activities and to assign resources only to value-added activities to avoid waste. The last step is to find the company’s baseline to enable the company to measure future performance and the effectiveness of the company’s efforts. (See Bunch, 2007)
Bunch, J. (2007). Learning Your ABCs. Homecare. Retrieved August 7, 2007, from http://homecaremag.com/mag/medical_activity_based_costing/index.html.See More on Processes, Product