Abc Accounting

IMPORTANCE/RELEVANCE OF ABC:

ABC is really important to large corporations for four reasons. The first one is because the manufacturing overhead costs in big corporations have increased substantially. The second one is the manufacturing overhead costs are not associated with direct labor hours or machine hours anymore. The third one is diversity of products and consumer’s demand has increased also. Last but not least, not all the products are produced in the same quantities. Some are produced in large quantities and other in small quantities.

The ABC system is important for organization because it helps the organization to make the right and accurate decision regarding which products and services participate in maximizing profitability and minimizing losses. Not only that, but ABC also helped managers to understand how to control expenses and expenditures. Generally speaking, ABC is more efficient when used over a long time. There is one bad thing about the ABC system; it is a very time consuming process and it needs a lot of money to gather and analyze data.

Even though ABC has proved to enable small companies to improve sales and profits, it used to be thought of as only useful for large corporations. Different from large companies, small companies do not need a lot of time and financial resources to implement ABC.

There are a couple of reasons for implementing ABC and they are: Improved Management, budgeting and performance measurement, accurate costs calculation and management, increasing product or service profitability, investments evaluations, and improved product quality through improved product and process design.

Non-profit organizations:

Non-profit organizations like universities, governmental agencies, and public sector organizations can adopt ABC to improve their financial management by measuring their inputs and outputs.

Benefits for implementing ABC:

• to become more competitive

• to serve as a basis for comparing performance among the various processing facilities

• to determine the cost differences in processing payments from customers

• to implement an effective, cost-competitive strategy

• to use resources efficiently to meet the needs of customers

• to allow organizations to link their inputs with their outputs through information

• to facilitate accomplishing the organizational goals

• ABC can assist in determining the allocation of resources. With this method, more resources may be designated to profitable products and services, while resources may be directed away from those areas that