Essay On Activity Based Costing
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Activity based costing customer success stories
This is a method of costing whereby the operations manager identifies the activities in the company and then allocates resources to the costs of each activity based on the consumption of each activity. This method usually identifies the activities that are carried out by the organization and then assigns overhead costs on the products. The major advantage of this method is the fact that it recognizes the relationship that exists between activities, costs and products (Wagener, 2010). Via this relationship, the method is able to assign overheads capriciously as compared to the traditional costs. Activity Based Costing is beneficial not only to the company but also to the customers. Discussed herein is the activity based costing customer story.
Pratt & Whitney realized the benefits of ABC model as it helped them reduced the costs significantly. Pratt & Whitney used the traditional methods of costing before adopting the ABC method. Following its use of ABC model, the company was able to reduce the costs significantly. As a result, the cost of its products also reduced (Computer Concepts Corporation, 2015). The customers the company which is in the Aircraft Manufacturing industry gave their stories following this change.
They have appreciated the reduced costs which are also accompanied by high quality. The have enjoyed friendly costs which enable them save money on the company’s products. It is also important to note that the company’s customers have increased as a result of this reduction of costs which has not compromised the quality of its products and services.
Activity Based Costing is a method that assigns costs based on the activities that the company executes. It is a method that ensures accurate costing and reduces costs in that any unnecessary costs are eliminated (Kaplan & Anderson, 2009). Customers benefit from Activity Based costing since the costs are products are reduced.
References
Computer Concepts Corporation (2015). Success Story – Pratt & Whitney.
Kaplan, R. S., & Anderson, S. R. (2009). Time-driven activity-based costing: A simpler and more powerful path to higher profits. Boston: Harvard Business School Press.
Wagener, D. (2010). Activity-Based costing and its later development into activity based budgeting and management. München: GRIN Verlag GmbH.
