Introduction to Optimal Costing System
Such type of a system is dissimilar from entity to entity. It relies on an in-depth analysis of costs and advantages related with designing of an appropriate costing system. ABC system is certainly more scientific since it produces more accurate product cost, but such type of a system should be applied while it is more economical vis-a-vis traditional costing system. Following issues should be taken into concern before installing activity based costing system:
1. Extent of competition,
2. Standardisation of product and
3. Proportion of overhead cost to total cost.
To conclude, activity based costing system might be more suitable while competition is fierce, enterprise creates varied products, with no standardisation with consider to consumption of resources and while overhead cost assumes a large proportion of total cost.
ABC system needs the following:
1. Setting-up of an information system that could assist trace all the costs to cost objects.
2. Support from top to bottom since the system includes people at all levels.
3. into financial system the integration of system. For it, computerization might be needed. The last words of comment over ABC system are that adoption, execution and operation of the system is not an end in itself. The advantages can be derived through translating the system design and its operation into action oriented managerial performance. Finally, it amounts to useful cost management for the success of the system.
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