Costing Corporate Accounting & Finance

Question: Discuss about the Costing for Corporate Accounting Finance. Answer: Introduction Activity based costing is a method to allocate the expenses on the basis of the quantity of resources for specific consumer products and services. It is beneficial for each and every organization because it facilitates the customized products and services. A customize manufacturing workplace requires the allocation of activity based costing in terms of actual indirect overheads of the products which enables the firm to assess their true cost (Rojas, 2017). Further, implementation of actual based costing can be difficult tasks for firms and operation as it carries different benefits and disadvantages for the firms. It is analyzed that implementation of ABC costing methodology is beneficial for the company because it focuses on the allocation of cost in operation management and also distributes the fixed, variable and overhead cost. For example, bank cashier uses activity based costing to assess the each type of cost related to services and products. It assesses by timing of every transaction of item (cost drivers) performed at the counter and after that determines the amount of every sort of deal. For the tasks related to machinery operation, cost drivers are likely to be operating hours of the machine (Kaplan and Anderson, 2013). Moreover, during operating the machinery, another activity cost would be maintenance cost, power cost, machine operating hours drive labor. But, at the same time, some ABC costing can be inappropriate to make a certain decision in business. For example, Activity based costing (ABC costing) may not execute to the principle of bookkeeping and cannot be used for outside exposure (Rojas, 2017). Because, conventional cost information tend to be the standard for implementing the ABC information with standard bookkeeping data can be puzzling and lead to taking a bad decision within firm. Absorption Costing is another method of computing the cost of a product/service/entity which considers direct as well as indirect expenses connected with manufacturing process. It is also called complete costing as the entire costs counting fixed overhead charges are incorporated as product costs. This kind of costing is needed by the accounting standards to build an inventory estimation that is shown in the financial statements of an organization (Fisher, and Krumwiede, 2015). Activity-based costing (ABC) can be used to apportion overhead expenses for inventory assessment purposes under the absorption costing method.As contrast to other costing method like variable costing, each expense in absorption costing is apportioned to products produced whether or not they are sold. A product may take in a various types of fixed and variable costs. These outlays are not recorded as expenses in the month of incurrence and they remain as a part of stock until the inventory is sold out. Till that time, they are included in the cost of goods sold. Absorption costing also has a drawback that at the end of the accounting period, the cost of the inventory includes overhead costs, which results in carry forward of these expenses to the next accounting period (Gil, 2017). Accounting principles need such overheads to be recorded in profit and loss account in the period at the time they are paid. If the closing inventory is greater than opening inventory, the profit would be higher under absorption costing as these overheads are added to the inventory cost in the balance sheet. References Fisher, J.G. and Krumwiede, K., (2015) Product costing systems: finding the right approach,Journal of Corporate Accounting Finance,26(4), pp.13-21. Gil, J.G.R., (2017) Characterization of traditional production systems of sugarcane for panela and some prospects for improving their sustainability,Revista Facultad Nacional de Agronoma,70(1), pp. 8045-8055. Kaplan, R., and Anderson, S. R. (2013) Time-driven activity-based costing: a simpler and more powerful path to higher profits. UK: Harvard business press. Rojas, E. (2017) The Disadvantages Advantages of Activity-Based Costing. [Online]. Available at: https://smallbusiness.chron.com/disadvantages-advantages-activitybased-costing-45096.html (Accessed: 13 February 2017).