Activity Based Costing

Activity Based Costing Introduction Activity based costing (ABC) is a widely adopted accounting practice where the cost of making various products and services are based on the companies’ activities (Panda1999, p. 5).Advertising We will write a custom essay sample on Activity Based Costing specifically for you for only $16.05 $11/page Learn More The costs are specifically allocated to products and services according to the level of consumption of each category but comprehensively, it assigns more indirect costs into direct costs (unlike other conventional accounting practices) (Armstrong 2006, p. 363). The major benefit associated with this accounting technique (ABC) is that a company can be able to specifically know which products and services take up most costs and which are overpriced and less profitable so that a required remedy is developed. Activity based costing basically works by allocating the overall resource costs according to the activities commensurate with the m to the final products and services that are produced by a given company (Armstrong 2006, p. 363). In a more general sense, the technique is basically used to understand a company’s profitability in relation to the costs incurred when producing various goods and services. In this regard, it is important to note that activity based costing has been widely adopted by many organization because it aids in decision-making processes that touch on pricing, outsourcing, identification, and the actual benchmarking of the standards of production of goods and services (Panda1999, p. 5). However, in as much as the activity based costing technique has been beneficial to many organizations; many are also finding it very difficult to implement it. This trend has seen a number of organizations in emerging economies face a number of challenges adopting the technique, despite evidence of incredible success of its implementation in other parts of the world existent in many literature excerpts. Significant challenges have been recorded in areas touching on acceptability, augmentation (with other computer systems in the organization), ensuring the system is of value to the company and its environment (among other challenges) (Liu and Pan 2007).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More This study will critically analyze the experiences and challenges of such companies in implementing ABC and how many of them have been able to succeed with this process, while others have openly failed. This will be done through an analysis of two companies (XU JI Electrical Company Limited and Global Electronics Inc) operating in emerging markets. XU JI Electrical Company Limited Though activity based costing has been widely adopted in the Western world, there is still increased skepticism among many companies operating in developing economies of its effectiveness. Such is the situa tion observed in China (Liu and Pan 2007). In fact, Hu (2001) explains that the implementation of Activity based costing in China is still at the theoretical level. This situation can be evidenced in the case of XU JI Electrical Company Limited which is based in China. The company is basically an electronics company that manufactures electronic goods used in the development of public infrastructures like rail. Activity based costing technique was introduced in the company in the year 2001 when there was a strong need to devise methods on how to tackle increased competition in the industry and to employ more efficient accounting techniques for better performance. The initial system was particularly based on the labor-hour absorption rate where costs were allocated across production lines. This system was largely inefficient because it inhibited the company from pursuing competitive pricing strategies. Activity based costing was therefore introduced in the early months of the year 200 9 under the First product department where the main objective for implementing the costing technique was to establish accurate product costing information for purposes of cost control (Liu and Pan 2007). In the implementation of the activity based costing technique, the services of an implementation team was sought, where their primary mandate was to train the existing employees on how to use the system and to build an ABC conceptual model. The latter task was effectively carried out, except for the general administrative and finance expenditures which contributed an overwhelming expenditure of approximately 77% of the entire cost budget. Due to the fact that there was an increased organization structure inhibition, the implementation team decided to develop the ABC conceptual model on the number of employees evidenced in each given activity (as a temporary measure) (Liu and Pan 2007).Advertising We will write a custom essay sample on Activity Based Costing specifically for you for only $16.05 $11/page Learn More From this analysis, we can see that the company’s operations in China’s fast-paced business environment posed a challenge in the overall implementation of the ABC model because it was difficult to maintain it on an up-to-date level. In fact, similar research studies point out that many more companies face the same challenges especially in identifying a good cost driver for the application of ABC because some of these cost drivers become obsolete after a given period of time (Liu and Pan 2007). Liu and Pan (2007) further explain that the same situation has been evidenced in a number of Western economies where many companies have had to abandon their ABC implementation processes because of the volatility of the economy. After basing the model on the number of employees, the Activity based costing model had to be computerized where a specific Chinese software was identified for this purpose. However, during the imp lementation process, the lack of experience in dealing with such software augmentation led the company into significant conceptual errors that almost grounded the activities of Activity Based Costing implementation process. The company therefore had to seek the guidance of the activity based costing implementation team manager to asses the situation and provide possible remedies. The team manager did so, and after determining the company’s rationale, the project went on smoothly. The company was therefore able to produce monthly Activity based costing reports but there was a significant challenge in augmenting the ABC software with other computer softwares that were in existence before it. From this analysis, we can see that there is a strong need for technical expertise in the product implementation stage of ABC implementation to tackle functionality and compatibility issues. This fact is also supported by Baker (1998, p. 257) who affirms that the input of technical expertis e is vital in the overall successful implementation of ABC. The technical expertise evidenced in the above scenario was characteristic of the team manager’s input in salvaging the situation (ABC implementation). As regards functionality and compatibility issues, it should be understood that the incompatibility of the ABC system and other computer systems was likely to pose a problem for other staff members in the organization (like in the warehouse division or the finance department) because there normally are instances of increased workloads where the officers have to double-check data added by the frontline managers into the ABC system.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More In making the employees and staff receptive to the new ABC system, XU JI Electrical Company Limited decided to adopt the formal feedback session technique (Liu and Pan 2007). This technique was successfully used to show employees the benefits of the system; a process which ultimately led to a lot of satisfaction among the company staff. However, some sense of resentment was observed from the front-line managers who pointed out the demanding nature of inputting data into the system as their biggest cause of concern regarding the system. Nonetheless, after subsequent meetings, there was a growing level of understanding among the managers. A link between ABC implementation and performance measures was identified to be the biggest cause for concern when analyzed in terms of future implementation considerations of the project which was considered to be a future agenda for discussion. From this analysis, we can see that the inclusion of the bottom-level and top-level employees in the impl ementation process was critical to the acceptance of the costing technique. Though there were significant objections coming from front-line managers, there were subsequent discussions aimed at seeking employee buy-in that brought the managers onboard. This analysis shows that constant communication between all stakeholders in the organization is likely to improve the probability that changes will be accommodated in the organization. Global Electronics Inc Global electronics Inc is a company specialized in making power semiconductors for signal processing and power control applications and many of its products are also used in braking antilock systems, airbag systems, computer keyboards, modems and the likes. During the end of the year 1999, the company had experienced a significant dip in sales that caused a lot of tension within the company (as regards the long-term prospects of the company’s sustainability) (Juras 2003, p. 1). To remedy this situation, the company decided t o employ the activity based costing system to uphold the company’s efficiency. In a general sense, the company experienced significant success in implementing the ABC system because its new manager, Chris Richards, had a good background in ABC. This was the first step that could be learnt from the company’s experience in implementing ABC because the company’s new manager brought a lot of technical expertise that could be used in implementing the ABC model. In a more general sense, this analysis shows that importing beneficial technical expertise is a positive move towards ensuring smooth implementation of ABC. It is also important to note that having someone with a significant experience about the implementation of ABC, spearheading the process, is also a good move for the company. It was also observed that the education about the new model (ABC) and the task of wrapping management’s thoughts around the new model was still attributed to him (Chris Richard s, the new manager). Basically, management’s buy-in could be attributed to his influence. This analysis is important to organizations that experience problems getting management to adopt to new changes in the organization. More essentially, it is important to note that having someone with considerable experience regarding ABC, in the managerial team is a plus towards getting the overall managerial team to accept changes in the organization. Another reason for the smooth implementation of the model was attributed to the company’s operating capacity. The company‘s director of manufacturing (cited in Juras 2003, p. 2) affirmed that: â€Å"The number one thing we had going for us was an urgency factor. I truly believe people would not have given us the time of day with respect to ABC if we were making 10 percent return on sales. Having operating losses of $100 million causes people to listen†. Moreover, in successfully implementing the ABC model, a steering co mmittee which encompassed most members of all the company’s departments was quickly formed. The members came from finance committees, product engineering, operations management, and other functional teams of the organization, but extra assistance was also sought from external organizations to enable the company effectively implement the ABC model (Juras 2003, p. 2). The move to include members from various departments of the organization ensured that the steering committee was holistic, in terms of member contribution because all the departmental members represented most functional areas of the organization. It is also important to note the input of the steering committee in the implementation of the ABC model because it played a vital role in the entire process. The steering committee basically went ahead to define the tasks of each company plant department, assign the resource costs to the specific activities, and determine the activity drivers, among other technical areas of the ABC implementation model (it is important to note that all functional managers of the organization gave support to the steering committee) (Juras 2003, p. 1). From this analysis, we can see that having a steering committee was quite vital to the successful implementation of the ABC model, considering the above tasks are key in the design stage of implementing the ABC model (Salvendy 2001, p. 2319). It is therefore vital for organizations that have a problem going past the design stage of the ABC model to have a steering committee that specializes on moderating the tasks to be covered at this stage. It was also confirmed by Global Electronics’ manager that setting short-term goals during the implementation of the ABC model was essential in ensuring the process implementation process was smooth (Juras 2003, p. 3). The short-term goals set for the implementation of the ABC model was meant to improve the product cost accuracy and optimize the company’s product mix. A long-term objective was also established, and it was meant to transit the company into a long-term activity based costing management criterion. This is also another pointer that can be borrowed by organizations which have a problem implementing the ABC model because quite a number fail to understand the short-term and long-term goals of implementing ABC in the first place. Having clearly set short-term and long-term goals is therefore vital to the overall implementation of the ABC model because it steers the organization into the right direction during implementation. Integrating the new ABC model with other existent systems was also a tricky affair for the company, but it successfully managed to undertake the ABC model in an offline manner where the system was managed separately from the previously existing labor-based standard costing system. In the same manner, the new model was also managed separately from the financial reporting system. However, it was quite tricky for the co mpany to maintain the offline system because there were issues of employee behavior, and other issues arising from previous negative experiences learnt from the PUC process that the company engaged in. Part of this problem was summarized by Juras (2003) that: â€Å"The problem with a non integrated approach, even though it is certainly a lot simpler and less risky, is how do you affect behavior?For example, you cant run the marketing organization based upon achieving some desired gross margin when they are relying upon bogus costs to push the stuff that you dont want them to be pushing.But, how do you motivate these people to go after the right set of products if youve got a bunch of accountants sitting over here who have knowledge derived from some offline system that nobody else is aware of?† (p. 3). This experience showed that despite the fact that the company had a remedy to solve the problem of implementing the ABC model; it still experienced significant challenges in su staining the strategy for long. The biggest cause for this problem can be attributed to the fact that the organization failed to include the behavioral aspect of implementing this strategy. From this analysis therefore, we can observe that the failure to include the behavioral considerations of implementing the ABC model in the organization can eventually render the whole strategy useless. Comprehensively, the ABC implementation process went on as planned and fell within a nine-month schedule, but this smooth transition could be attributed to including activities within the cost model that bore a strong influence to strategic product pricing and mix decisions (Juras 2003, p. 3). The inclusion of a centralized project team also contributed a lot to the coordination of activities that were done in the implementation process. This team was quite crucial in ensuring a sense of consistency was observed within all plants. It is also identified that the top-bottom approach of implementing the ABC model was deemed appropriate because such a model was basically aimed at making lower-level employees understand the benefits of the ABC model. Moreover, it was identified that the ABC model was essentially hatched at the company’s headquarters and it was the duty of management to push the idea down to lower-level managers and employees (regardless of their personal decisions) (Juras 2003, p. 3). Interestingly, the move by the company’s project team to educate the plant manager was criticized by the company’s manager as ineffective because of the assertion that: â€Å"When we went to the plants to do training, it was like a whirlwind tour; we just showed them some charts and said, now sit down and we are going to ask you some questions.I dont think we put ourselves in our internal customers shoes. We paid very little attention to their constructive concerns or their need to truly understand ABC†. Conclusion This study points out the challenges and successes of implementing ABC by two companies operating in emerging markets. Comprehensively, we see that firms in emerging markets have a significant problem in accepting ABC because it is not a previously implemented model. Having a steering committee and seeking the services of an external agency (with a significant experience in ABC implementation) is a good strategy to making existing managerial teams accept changes. We have also seen that there is a significant challenge experienced by the companies in augmenting ABC with previously existing computer applications, and comprehensively, we see that seeking technical expertise in doing so is a good move towards ensuring there is a smooth transition into ABC, without causing any operational hitches. Also, we see that having clearly set goals is an important tool to steer the implementation of the ABC model in the right direction. This observation is critical, in the sense that, many organizations have been identified to abandon ABC implementation because they do not have a clear understanding of the importance of implementing the ABC model in the first place. In a general sense, we can see that adopting a top-bottom implementation strategy is also important in ensuring the ABC mode is implemented effectively. Burke (2006) affirms this fact and implies that the top-bottom implementation strategy is important because the decision to implement an ABC model is normally undertaken at the company’s headquarters and many organizations expect managers to ensure employee buy-in, to make the transition a success. Conclusively, we can say that organizations operating in emerging markets experience challenges of transitioning from old accounting models to ABC and therefore, tactical strategies need to be adopted to ensure there is a smooth transition from old accounting models into new models. References Armstrong, M. (2006) A Handbook Of Management Techniques: A Comprehensive  Guide To Achieving Managerial E xcellence And Improved Decision Making. London, Kogan Page Publishers. Baker, J. (1998) Activity-Based Costing and Activity-Based Management for Health  Care. London, Jones Bartlett Learning. Burke, L. (2006) CIMA Learning System 2007 Management Accounting Decision  Management. London, Butterworth-Heinemann. Hu, Y.M. (2001) The spontaneous formation and development of ABC, ABM in Chinese Organization. Accounting Research (China), 3, 33–38. Juras, E. (2003) Global Electronics, Inc.: ABC Implementation and the Change  Management Process. (Online) Web. Liu, L.Y.J. and Pan, F. (2007) The implementation of Activity Based Costing in China: An innovation action research approach. The British Accounting Review, 39, 249 264. Panda, N. (1999) Activity Based Costing For Indian Industries. New Delhi, Mittal Publications. Salvendy, G. (2001) Handbook of Industrial Engineering: Technology and Operations  Management. London, Wiley-IEEE.

Student Black People and Henretta Essay

Student Black People and Henretta Essay Student: Black People and Henretta Essay Amanda Watson HISTORY 102 0002 American History Since 1877 November 27 2012 Life in Mississippi in the 1940’s and 1950’s Growing up in Mississippi was extremely harsh and dangerous for African Americans in the 1940’s and 1950’s. The coming of age in Mississippi was a good example of firsthand experience of the living conditions, daily life, work, schooling, and violence in the South. Anne Moody experienced life with all kinds of White people. Some White people were kind and loving towards Moody. Some White people were racist and mean to Moody. The Moody family lacked nutritional food and basic living necessities. Mississippi was one of the hardest states for African Americans to live in the 1940’s and 1950’s due to racism. After growing up in Mississippi Moody knew that when she turned 18 and graduated from high school she wanted to move away from Centreville and go to college to be free of White racism. The living conditions for many African Americans in Mississippi where worse than animals. They lived in shacks that were made out of rotten wood. The shacks were previously used as slave’s quarters before the abolition of slavery. Many living quarters for African Americans were comparable to the barns that plantation owner’s animals lived in, only worst. Moody’s family moved from many different shacks when her parents would switch jobs. They normally were crowded and had little furniture. They did not have real walls, only wall paper and cardboard to cover the holes (Moody p. 3). Most African American families would live on the plantations that they worked. They would all sleep in one room and eat, cook, bath, and congregate in the other (Moody p.30). Most of the shacks didn’t have plumbing or toilets indoors. African Americans would use outdoor toilets and take baths in a metal tubs, a barrel, or an animal feeder. Plantation life was similar to life as a slave. African Americans would sharecrop or farm for the White plantation owners in exchange for housing and low wages. White people had owned a lot of land that needed to be farmed. There were many shacks that available for African Americans to live in on the plantations. Moody grew up in a shack right next door to a huge beautiful mansion on top of a hill that overlooked the other shacks (Moody p. 3). African Americans knew that animals were living better than them and their children. African Americans hoped for a better future and work hard every day. They learned to be content with their lives and the slow change in equality. Debt replaced the whip of slavery. Poverty replaced the burden of free work. The right of being free came with a larger price of starvation and a poor living standard. When African Americans were freed, they had to find a way to put a roof over their family’s head and provide their own meals. When African Americans were slaves it was the owner’s job to feed them and provide housing. In exchanged they would get free labor and make a huge profit. The plantation owners decided what to pay the African American workers. Unfortunately, they also decided on how much to charge for them to live on their land while they worked it. The daily lives of Southern African Americans were harsh and back breaking. In Moody’s childhood; long days of being left alone was normal. Many parents only option was to go to work and leave their children at home by themselves. There was always a risk of death, mistreatment, or accidents when parents left their kids alone. Fires were common and they consumed the whole shack within minutes, because the wood was dry and rotten. Their stoves were a huge fire hazard in the shacks. Some raciest White people would set the houses on fire too. Moody’s family lost one house to Jr. (Moody’s brother) knocking over the stove (Moody p. 29). Moody’s cousin Gorge Lee set the wall paper on fire while babysitting (Moody p. 8). Moody had been beaten by her cousin and Diddly (Moody’s biological father). Family violence in the