Cost Accounting Essay

7710 WordsMar 18, 201531 Pages
WHY IS TRADITIONAL ACCOUNTING FAILING QUALITY MANAGERS? ACTIVITY-BASED COSTING IS THE SOLUTION Gary Cokins Director of Industry Relations ABC Technologies Inc. 16100 NW Cornell Road Beaverton, OR 97006 Tel: (248) 642-1296 Fax: (248) 642-1789 E-mail:garyc@abctech.com SUMMARY Today’s general ledger and budgeted spending systems support departmental and stovepipe managerial philosophies, but not decision support. Some standard costing systems are suspect for misallocating indirect costs. In contrast, activity-based cost management (ABC/M) information supports business process-based thinking and corrects for flaws in costing methods. Managers are increasingly being challenged to cost justify their spending proposals with more fact-based data and less on faith. Some quality managers are even being asked to justify their own existence and value to their organization. The traditional accounting data is incomplete and structurally deficient to allow managers to measure and analyze. Cross-functional processes are now recognized as the integrating theme for how work gets done, how outputs are produced, and how customers get served. ABC/M brings true fact-based measures and visibility to costs, without the dreaded and often distorting overhead cost allocations. More importantly, ABC/M reveals what drivers cause costs. Ultimately cost data is simply a means to an end where the ends are the decision-making of the organization. Today an emerging focus is to become a learning organization. Unlike traditional accounting reports that managers react to by being happy or sad, ABC/M data makes them smarter! KEY WORDS activity-based cost management (ABC/M), cost accounting, decision support A PROBLEM WITH COST ACCOUNTING “Traditional managerial accounting is at best useless, and at worst dysfunctional and misleading.” —Professor John K. Shank Dartmouth College Keynote

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