Implementation Of Activity Based Costing In Developing Countries Accounting Essay Example For Students

Implementation Of Activity Based Costing In Developing Countries Accounting Essay Activity based costing ( ABC ) is invariably replacing the traditional accounting system. ABC introduced by Professor Kaplan and Cooper of Business School of University of Harvard. ABC is method that lists and measures the cost of each activity that facilitates the production to present the merchandise and service to client. ( Sohal and Walter, 1998 ) The usage of Activity-Based Costing ( ABC ) in the West is really common as it provides more dependable information about the cost associated with bring forthing the merchandise. But in comparing with the developing states it is non so popular ; this may be because of the complexness of the accounting system or the cost associated with the execution or the cognition required for the execution of the system. ( Liua and Panb, 2007 ) Activity-based Costing ( ABC ) helps us to place with the different cost activities for the each merchandise, service, or client by ciphering the cost that arises from bring forthing or doing or presenting the merchandise or service. ABC delivers more specific information than traditional accounting system because it identifies the relationship between the cost driver and the activities associated with the production of that merchandise. It helps to detect those activities those are non-efficient and does non add value to the public presentation of the activity ; therefore it helps the organisation to work the chance to cut down cost and maximise net income. ABC is an ideal manner to pull off activities and better the quality of activities by inquiring why and how good activities are adding value to merchandises and services. ( Moore, 2000 ) . The chief concern in the field of accounting is to detect the different factors that contribute the success of direction accounting system. Activity Based Costing ( ABC ) is to a great extent used in the direction accounting for more than a decennary. The acceptance rate of ABC is about 20 % in the larger companies ( Pike and Tayles ) . ABC is non merely successful in the field of industrial fabrication system but besides it is successful in the field of wellness sector, public utilities, sweeping and retail organisation. In add-on to its application in a broad assortment of commercial fabrication concern it has besides been adopted by public public-service corporations, by sweeping and retail administrations. The acceptance rate in the Far East is non so mention worthy because of complexness in implementing the system ; it deals with tonss of proficient issues. The most important drawback of ABC execution is that, the users of ABC end product are non much aware of this new system, t hey are more acute to utilize the traditional accounting system, therefore it is necessary to guarantee that the member of direction who uses it are good knowledge about the ABC system, supplying preparation for the underscoring the logic, design, and execution of ABC. There is no grounds that, the execution of ABC will be successful, if the organisation is large, the direction understands the value of result, but it depends on how expeditiously and efficaciously the direction can do correlativity with the system for the better result of the ABC system. ( Pike and Tayles ) Outline1 Article one: Bank OF CHINA2 Bank of China and ABC execution3 Reasons of failure ABC execution in Bank of China4 Article Two: Thulium5 Company background6 Reasons of ABC execution7 ABC execution procedure8 Execution jobs9 Advantage of utilizing ABC10 Article three: Xu Ji Electric Co. Ltd.11 Company background12 Implementation procedure in Xu Ji13 Success factors of Xu Ji14 Decision: Article one: Bank OF CHINA Bank of China, established in 1912, runing for about 100 old ages is the largest fiscal organisation in China. It serves the Chinese economic system for the well being of society by supplying banking service. The chief end of Bank of China is to entice foreign investing and aid in developing the Chinese economic system every bit good as the market. The bank serves the state by it 1000 subdivisions across the state ( Abdallah and Wei, 2008 ) . Bank of China and ABC execution Every company finds manner to minimise its cost. Bank of China is non an exclusion. For this ground the top direction of Bank of China decided to present activity-based costing system with a position to minimise its cost in 2005. The debut of ABC system was induced by several factors. First of wholly, from the mid 1990 s different good celebrated bank came to China to make concern as Chinese economic system started to din and it was a attractive market for the foreign Bankss, Bank of China was confronting challenge from those foreign Bankss. Second, it wanted to present portion in the capital market. Third, the promotion of foreign bank in China compelled Bank of China to pull off its resource more efficaciously and expeditiously. For the aforesaid survey findings Bank of China wanted to implement ABC, although the execution was really slow and in most subdivisions the execution was halted ( Abdallah and Wei, 2008 ) . Reasons of failure ABC execution in Bank of China The ground of failure ABC execution in Bank of China can be viewed from the undermentioned treatments. Vague concern end: The debut of ABC was done by the section of accounting, but there were no representative from any other section who was the user of the ABC system, because deficiency of involvement in ABC. This resulted loss of motive and letdown in the accounting section. On the contrary, most of the member of staff of different section of Bank of China was confused about ABC. Because, the end of ABC was non clear among the employees and most of the employees thought that, it would merely do a binding of the disbursement bound. Some employees thought that, it would assist the organisation to modify the procedure of work ; on the other manus some employees thought that, the construction of the organisation will be restructured. The general director of the Bank of China thought that, ABC would assist the company to increase the answerability in the different section of the organisation. So, it is really much evident that, the end of the execution of ABC in Bank of China was non cle ar. Holocaust Rememberance Day EssayAnother committed was formed which included top direction. TM besides hired specialised advisers to develop the concerned employees to do knowing about the ABC. Then they identified the different cost drivers. The company besides wanted to do certain everyone knows about the new system that s why they invited relevant sections staff to work with them and to cognize about the system. The top direction supported them in every manner. They besides provided computing machine preparation for the employees. ( Majid and Sulaiman, 2008 ) TM used ABC for pricing of the merchandise, doing determinations about merchandise end product, managing of cost, for cut downing cost, planing new merchandise, profitableness analysis of client, betterment in the procedure and for planing new merchandise. Furthermore, they used ABC for measuring public presentation. Execution jobs At the really beginning, the top disposal of the company was non so motivated. They perceived that, it was same accounting system that was predominating so. So, it would merely be a waste of clip and money above all the waste of company resources. They besides thought that, there was more serious job than the debut of new accounting system. For the better apprehension of the benefit of the debut of ABC, bing director made a pilot trial to elicit involvement among the top authorization. The lower degree of the company was besides non convinced to accept the new accounting system. As employees did non hold cognition about the ABC accounting system. As engineering alterations more quickly, new cost drivers had to be introduced by the terminal of primary designation of cost drivers. ( Majid and Sulaiman, 2008 ) Advantage of utilizing ABC ABC helped the company to cognize about the non-value added activity and the occupations which was done non-effectively. With the usage ABC directors were able to do more precise determinations. Furthermore, TM managed to cut down the clip and waste of resources. They besides identified that they were paying high cost for the overtime costs ( Majid and Sulaiman, 2008 ) . By the debut of ABC, TM developed a procedure flow. ABC helps relevant section directors to place those costs which are high. After the debut of ABC, TM was able to keep its resources more expeditiously and efficaciously. Article three: Xu Ji Electric Co. Ltd. Company background Xu Ji is public limited company on Shen Zhen Stock Exchange in China. The company produces different electrical merchandises. The Xu Ji was ever wanted to maintain gait with the latest direction thoughts ; it took those thoughts which were successful in the West. As ABC was successful in the West Xu Ji was besides interested to implement the ABC. Implementation procedure in Xu Ji As competition was turning in the electronics sector, Xu Ji felt the demand to present ABC. The traditional accounting system is unable to place the departmental net income but in contrast to this ABC is able to happen out net income of single section. The traditional accounting system use direct labour hr cost, distribute operating expense across the production lines, which give incorrect merchandise cost and incorrect thought about the net income of each merchandise class. As the market demands merchandises in inexpensive monetary value, it was truly absurd for Xu Ji to sell merchandises in a inexpensive monetary value as they did non cognize about the cost driver of each merchandise. The ABC execution in Xu Ji was conducted by a squad ; it included all the members from each section. For the successful execution of ABC a theoretical account was designed to place fabrication cost drivers and different cost activities. To make it more expeditiously, computing machine automated system was introduced. But it was non so fruitful as the house which was helping in ABC mechanization was inexperienced. This drawback was solved by the Xu Ji by attaching the relevant forces with the package mechanization squad. The chief drawback of the mechanization system was that it needed manual input of the informations. Success factors of Xu Ji Xu Ji was successful in the execution of for several grounds. All the section was working together to do a fruitful result. The mechanization of ABC was a great challenge as all the parties involved in the mechanization procedure were incognizant of ABC but this challenge was successfully met by the united attempt of all the parties. Proper preparation was made for the relevant forces who were in charge of implementing the ABC. The end of the group and the company was similar. Before full execution of the ABC, a pilot trial was done to judge the result of the ABC. Decision: For the better execution of ABC it is necessary that, the support of the top degree of direction is really of import. As ABC is a new system for many organisation and there must be a cognition sharing procedure throughout the organisation. The user who will implement the ABC must be associated with the determination. Training for the employees is necessary. The cost drivers must be identified accurately. Before full execution of ABC, every organisation should run a pilot trial. The cost of system i.e. the computing machine mechanization system cost must be taken into history. The new system must look into what would be fiscal impact of execution of ABC. The ground behind the non-popularity of ABC in developing state is that it needs a batch of attempt to implement, every bit good as cost is associated with the execution. Last but non the least, for successful execution of ABC a perfect theoretical account, program, appropriate cognition and expertness is required.