The Advantages And Disadvantages Of Traditional Absorption Costing And Activity Based Costing

The Advantages And Disadvantages Of Traditional Absorption Costing And Activity Based Costing The major distinguishing features of ABC compared with traditional costing system are that ABC systems assign costs to activity cost centres rather than departments. (Drury, 2008) Although traditional absorption techniques may apparently seem to less complicated or tedious as opposed to ABC, the report will show why, ABC is the best most accurate technique. The traditional technique used to determine which technique is better of the two will be absorbing indirect costs on a labour hour basis. Why does the company need either absorption costing or ABC? There are two main reasons why the company needs to employ either technique these include; To identify product costs for pricing and/or cost control purposes Its necessary for manufacturers to ascertain the cost of closing stock in order to measure and report profits to the shareholders, plus in the UK SSAP 9 IN 1975 has requires all companies to include manufacturing overheads in the cost of closing stock. (Drury, 2008) Differences between Traditional Absorption Costing and ABC There are three major differences between absorption costing and ABC: In traditional cost accounting it is assumed that cost objects consume resources whereas in ABC it is assumed that cost objects consume activities. Traditional cost accounting mostly utilizes volume related allocation bases while ABC uses drivers at various levels. Traditional cost accounting is structure-oriented whereas ABC is process-oriented. (Emblemsvag, 2008) This is further illustrated in the figure below (Emblemsvag, 2008) ABC brings detailed information from the processes up to assess costs and manage capacity on many levels whereas traditional cost accounting methods simply allocate costs, or capacity to be correct, down onto the cost objects without considering any cause and effect relations (Emblemsvag, 2008). Further differences include; (James D. Tarr, 2004) Traditional cost models apply resources to products in two ways. So called direct costs like material and direct labour are attributed directly to the product and other resources are arbitrarily allocated to the product, typically through the mechanism of direct labour hours, labour dollars or machine hours. Sales, marketing and administrative costs are not included in product costs. Activity Based Costing (ABC) does not change the way material and direct labour are attributed to manufactured products with the exception that direct labour loses its special place as a surrogate application method for overhead resources. Direct labour is considered another cost pool to be assigned to processes and products in a meaningful manner, no different than any other resource. The primary task of activity based costing is to break out indirect activities into meaningful pools which can then be assigned to processes in a manner which better reflects the way costs are actually incurred. The system must recognize that resources are consumed by processes or products in different proportions for each activity. With ABC, all costs reside in resources, which are such things as material, labour, space, equipment and services. Resources are consumed by activities which have no inherent cost. The cost associated with activities represents the amount of resource they consume per unit of activity. Resources and activities are then applied to cost objects, that is, the purpose for which the resource is consumed and the activity is performed. Each resource and activity has a unit of measure which defines the amount of the resource consumed or activity required by a unit of demand for it. Resources can be consumed by resources (e.g. office space resource is consumed by an employee resource), by activities (e.g. telephone resource is consumed by a customer service call activity) or by cost objects (e.g. material resource is consumed by a product cost object). Activities can be performed in support of another activity (e.g. invoice printing activity supports the billing activity) or in response to a cost object (e.g. purchase orders are issued to support the material acquisition process). A cost object can be a process or product and either an interim cost object or an end user (customer) cost object. For example, hiring personnel may be a cost object of Human Resources Department utilizing space, utility, telephone, supply and labour resources and performing advertising, calling, interviewing and orientation activities. That cost object may be a resource used by other departments to secure labour resource for their department. Building a network of resources, activities and cost objects defines the operational flow of the process or processes to be costed. Each resource and activity has a unit of measure which converts them at a unit of demand rate. If a cost model is to be useful and effective in determining process and product costs, it is imperative that the business process be identified and understood first. Only then can costs be attached to determine the cost of the defined process.  (James D. Tarr, 2004) Advantages and Disadvantages of Traditional absorption costing techniques Advantages: (College Accounting Coach, 2006) It recognizes the importance of fixed costs in production. This method is accepted by Inland Revenue as stock is not undervalued This method is always used to prepare financial accounts; When production remains constant but sales fluctuate absorption costing will show less fluctuation in net profit and Unlike marginal costing where fixed costs are agreed to change into variable cost, it is cost into the stock value hence distorting stock valuation. Disadvantages: Ignores the fact that different products make different demands on factory support services. (Drury, 2008) As absorption costing emphasized on total cost namely both variable and fixed, it is not so useful for management to use to make decision, planning and control. (College Accounting Coach, 2006) As the managers emphasis is on total cost, the cost volume profit relationship is ignored. The manager needs to use his intuition to make the decision. (College Accounting Coach, 2006) Lucey, lists the following Advantages and Disadvantages of Activity Based Costing (ABC) (Lucey, 2002) Advantages: More realistic product costs are provided especially in, industries where support overheads are a significant proportion of total costs. More overheads can be traced to the product. ABC is concerned with all activities so takes product costing beyond the traditional factory floor basis. It recognises activities which cause cost, not products and it is products which consume activities. Focuses attention on the real nature of cost behaviour and helps in reducing costs and identifying activities which do not add value to the product. ABC recognises the complexity and diversity of modern production by the use of multiple cost drivers, many of which are transaction based rather than based solely on production volume. ABC provides a reliable indication of long run variable product cost which is relevant to strategic making. ABC is flexible enough to trace costs to processes, customers, areas of managerial responsibility, as well as product costs. ABC provides useful financial measures (e.g. cost driver rates) and non-financial measures (e.g. transactions volume) Disadvantages: Even though ABC removes most the problems with traditional absorption techniques its faced with the following criticism The choice of cost drivers. It is a simplistic assumption that a chosen cost driver is an adequate summary measure of complex activities The assumption of a direct, linear relationship between the usage of a cost driver and the amount of overheads. Very few costs indeed are truly variable in this sense whether in the short or long term. The problem of common costs. It is often difficult to attribute costs to single activities; some costs support several activities. Tracing difficulties. It is not always apparent which product should carry the traced overhead. Complexity. A full ABC system having numerous cost pools and cost drivers is more complex and consequently more expensive to operate. (Lucey, 2002) Definitions: An allocation: where discrete items of cost can be allotted to cost centres An apportionment: this is where the cost has to be spread or shared over several cost centres Absorption rates: Is the rate determined in advance for all cost centres for allocating fixed costs and variable costs (together or separately) to the output, in an accounting period. Recommendation: I suggest that the company consider adopting the ABC technique as this is much more suitable way to monitor costs especially in a company in where direct costs are a declining proportion of total cost and support overheads are a major proportion of costs in this company and is therefore of considerable importance that these support overheads are traced to product costs in a more realistic manner.

Sigmund Freuds Ego Defense Mechanisms Essay -- denial displacement pr

Sigmund Freud is perhaps one of the most well-known theorists in regards to the study of the human psyche. Freud’s model of the human psyche is comprised of three core elements: the Id, or the unconscious mind; things out of our awareness. The Superego, or the subconscious mind, and finally the Ego, which lies between the unconscious and subconscious. Freud proposes that there are nine ego defense mechanisms that act the ego uses in its job as the mediator between the id and the superego. In psychoanalysis, an ego defense mechanism is an unconscious personality reaction that the ego uses to protect our conscious mind from threatening feelings or perceptions. The ego defense mechanisms are as follows: denial, displacement, projection, rationalization, reaction formation, regression, repression, sublimation, and suppression. Ego defense seems to occur subconsciously – we are often not aware that we are becoming â€Å"defensive†. I believe that we use a complex of many, if not all of Freud’s ego defense mechanisms.   Ã‚  Ã‚  Ã‚  Ã‚  Personally, I believe regression and rationalization may be the two defense mechanisms I use most. Regression is defined as â€Å"returning to a previous stage of development†. For example, if things do not go my way and continue to do so, it might be followed by bouts of temper tantrums and mood swings.   Ã‚  Ã‚  Ã‚  Ã‚  Rationalization is supplying a rational or logical reason as opposed to the real reason. I have found that I use this â€Å"tactic† a lot, and was not aware of i...

Mintzberg

The company is a Microsoft certified Partner. The Hosting market in the UK is set to grow by 1 1. % CARR over the next 5 years from a basses Emma in 2008. This growth being driven to by factors that fit well with the economic climate- cost reduction, increased efficiency, scalability and flexibility. In addition, the Hosting market speculated with a wide range of similar product offerings often only differentiated by relativism's technical variables.Being competitive In this market relies on adding value by additional reappraisal services such as consultancy and high levels of technical service supported opportunity for â€Å"Company A† lies in providing value-added services that deliver seduction, increased efficiency, scalability and flexibility. â€Å"Company A† has a product range to compete with the best providers with ready-to-go serviettes through to highly complex solutions. It is the leading supplier of Filmmaker tablespoonful In the UK and Is a Microsoft Certi fied Partner.In addition â€Å"Company through its service levels. Let provides a superior level of hand-holding and technical support that differentiates itself frothier hosting providers. â€Å"Company A† is well positioned to convert this opportunity into significant growth with distressing product angel and high service levels but has identified a need to increase its marketability. It has therefore created a plan to develop its sales and marketing structure which wildcatters on this opportunity and double its revenue over the next three years.Core to thespian is investment in three target growth areas with low cost of sale that provide low risk endothelial high return. This will increase its currently low visibility with its customers and in thematic place, develop new sales channels and increase large customer sales. With 75% of revenue currently generated wrought solid and predictable monthly irresistibleness, and cash providing xx cover of its monthly overheads the c ompany is in a gastrointestinal position.It is able to support its growth plans with its current borrowing and does anticipate any need for further loan or equity finance. Page 3 of 26 â€Å"Company A† Limited – Business Plan Commentary) BACKGROUND†Company A† Limited (â€Å"The Company') is a middle tier hosting company based annex, UK with an annual turnover of Exam in the full year to July 2008. It was established Sears ago to provide web-development and ousting services and is now 100% focused nonbinding hosted services – internet hosting, back-up and email services – from its secure decanter in the UK.The company is the leading supplier of XX hosting solutions and is Microsoft Gold Certified Partner. It offers simple Ready-To-Go-Systems and built trotter Complex Hosted Systems as well as the ability to host customer hardware ‘nits secure data centre. It also offers Domain Management for its clients. The Company has a client base of around 600 small, medium and large boisterousness's both internationally and in the I-J that include Abacus Media, PrestigeProperty,Worldwide [Daily Telegraph, Kodak Dental Systems and Sifts. Clients are served by XX staff who provide a 2417 managed service environment and range of expertise that includes Linux, Myself Server, Cisco & Jupiter Networks, Happy Dell storage, ASS and Apache Servers, SAP, PH, Ajax and . NET. The Company is run by Managing Director Joe Oblongs who has over 20 years of IT interdependence, and Josephine Oblongs who has guided the growth of the company as Financial undemonstrative Director.To date the company has been funded by a mixture of loan and equity finance secured by decrement directors of the company. The many is in a stable financial position with good recurring business but has yet to reaching full market potential. With the experience of the current directors and operations team and the recruitment of experiences sales and marketing personnel it has developed a growth plantar will see its revenue double over the next three years to around Exam.

Fix Common Runtime Errors in Java With Careful Debugging

Consider the following segment of Java code, stored in a file called JollyMessage.java: // A jolly message is written to the screen! class Jollymessage {   Ã‚  Ã‚  public static void main(String[] args) {   Ã‚  Ã‚  Ã‚  Ã‚  //Write the message to the terminal window   Ã‚  Ã‚  Ã‚  Ã‚  System.out.println(Ho Ho Ho!);   Ã‚  Ã‚  } } At program execution, this code will produce a runtime error message. In other words, a mistake has been made somewhere, but the error won’t be identified when the program is compiled, only when it is run. Debugging In the example above, notice that the class is called â€Å"Jollymessage† whereas the filename is called JollyMessage.java. Java is case sensitive. The compiler won’t complain because technically there is nothing wrong with the code. It will create a class file that matches the class name exactly (i.e., Jollymessage.class). When you run the program called JollyMessage, youll receive an error message because there is no file called JollyMessage.class. The error you receive when you run a program with the wrong name is: Exception in thread â€Å"main† java.lang.NoClassDefFoundError: JollyMessage (wrong name: JollyMessage).. Common Runtime-Error Solutions If your program compiles successfully but fails at execution, review your code for common mistakes: Mismatched single and double quotesMissing quotes for stringsIncorrect comparison operators (e.g., not using double equal signs to indicate assignment)Referencing objects that dont exist, or dont exist using the capitalization supplied in the codeReferencing an object that has no properties Working within integrated development environments like Eclipse can help you avoid typo-style errors. To debug productionalized  Java programs, run your Web browsers debugger—you should see a hexadecimal error message that can assist in isolating the specific cause of the problem. In some situations, the problem may lie not in your code, but in your Java Virtual Machine. If the JVM is choking, it may kick out a runtime error despite the lack of a deficiency in the programs codebase. A browser debugger message will help isolate code-caused from JVM-caused errors.