An Effective Tool for Better Management

An Effective Tool for Better Management

The study clearly focuses on gaining much better understanding on activity based costing systems while giving the reader its concepts and how to apply the concept and success stories. Activity based costing is an emerging trend with many obstacles as many people are used to follow the traditional costing methods which has been the practice throughout. Simply many organizations have been practicing the traditional costing methods as it is easy to understand and is less costly. Unlike the activity based costing methods, traditional costing methods have simple rules and is easily understood. However this study advises the benefits of using activity based costing while mentioning that it may be a tedious task and requires importantly the coordination of the cross functional teams to work smoothly.

The findings can be used for local manufacturing company where activity based costing will be very useful to identify costs accurately. It is indeed important for manufacturing organizations to use activity based costing as there are range of cost activities and the costs can be broken into cost pools before identifying the cost drivers and allocations. Taking the nestle research mentioned in the article it required the coordination of the cross functional teams across the organization to share information. Teams need to share information while making the process less sophisticated to identify correct areas and make right decisions.

This stresses the importance of educating the users of accounting information and also the people who work in the accounting departments. However unlike traditional costing methods where only the accounting department is involved, in activity based costing it is a team work for which all departments need to get involved. Therefore it is important to educate all users that their contribution is important for this. Specifically it needs to be mentioned that accurate cost information can be obtained by this.

Therefore it is vital for all people working in an organization to identify the areas of improvement in accounting and finance while making recommendations for process improvements and enabling the organization to achieve their goals.