Activity-Based Costing and Management Solutions to Traditional Shortcomings of Cost Accounting

摘要

Traditional cost accounting has been one main, widely-used approach to costing both internally and externally. This general ledger system acts as the company's thermometer measuring the health and wealth of the overall business. The conventional methodology though can only summarize the business expenses per the chart of accounts (i.e., labor, material and other). Any expenses and overheads are not associated to any specific activity or processes. As a result, the company lacks the ability to evaluate the internal efficiency, quality and profitability per product or service line. Activity-based costing and management (ABC/M) is the applicable total quality management solution that can supplement these shortcomings. The ABC/M approach records, summarizes and reports the spending into costs of activities or processes and eventually associated to each product, service and customers. "Unlike traditional accounting reports that make managers react to by being happy or sad, ABC/M data makes them smarter" [3].