Abc_Accouting_Systems

"ABC systems are always more accurate than traditional costing systems." Do you agree' I do agree with the statement because the activity-based costing (ABC) is a type of costing system that can be used to assign costs more accurately to products and departments in today's complex business world. There are many types of costing systems available for businesses to use; most of these costing systems are designed to assign costs to products. Activity-based costing (ABC) on the other hand is designed to assign costs to activities. ABC has become popular due to the fact that as businesses grow in complication, so does their need to assign increasingly large indirect costs to the appropriate area or activity. Activity-based costing can theoretically be used in almost any industry, because it can be changed to determine costs at so many different levels. However, ABC is used most effectively in complex companies that are not entirely service-based. Complex companies may see the most benefit from this type of costing because it is most helpful when the costing information is difficult to understand or evaluate. Service industries may not benefit as much from activity-based costing as other industries because their costs can be difficult to assign, as they may not have an accounting cause and effect relationship. One of the most important differences between traditional and ABC systems are the extent of allocation across the value chain. Traditional systems generally assign only production costs to the products. These are the only costs that generally accepted accounting principles (GAAP) allows companies to include in the inventory value of a product for financial reporting purposes. Traditional systems often focus on simply measuring such inventory values. They normally do not allocate the costs of other value-chain functions because these are not appropriate costs to include in inventory. ABC systems, in contrast, focus on the costs that are important to decision makers. They often expand the allocation of costs beyond production to processes such as design, marketing, order processing, and customer service. As a result, ABC systems are more complex but promise more accurate costs that is more useful for decision-making.